One single transport, two countries, three parties – and an unexpected tax liability.

At first glance, international chain transactions may appear straightforward: the goods leave the seller and arrive at the customer. But what happens if the transport route does not follow the logic of the sales chain?

In this article, we present a chain transaction where – due to the place of supply being in Hungary – a third‑country company becomes subject to VAT registration in Hungary, even though the goods do not physically remain in Hungary. As a result, the foreign sale could easily (but sometimes incorrectly) be considered VAT‑exempt export.

Our specific example helps explain when and why VAT registration in case of chain transactions becomes necessary, and how non‑compliance with Hungarian VAT regulations can be avoided.

Why may VAT registration be required in general?

Similarly to EU‑established companies, third‑country (i.e. non‑EU) businesses may also be required to register for VAT in Hungary in certain situations. The most common cases include when the company:

• moves its own goods to Hungary,
• sells goods to Hungarian customers, or
• ships goods from a warehouse rented in Hungary.

However, since the obligation to register for VAT depends on an economic presence in Hungary and the existence of taxable transactions , there are situations where the sale does not take place in Hungary and the goods immediately leave the country, yet Hungarian VAT registration and ongoing VAT compliance obligations still arise. An international chain transaction is one such scenario.

Not only an obligation, but also an opportunity

Although failure to comply may result in tax penalties, late payment interest and other legal consequences, VAT registration is not only essential from a compliance perspective. A VAT‑registered entity is also entitled to deduct input VAT on its purchases, while registration ensures transparency of economic activity at the Hungarian tax authority.

Let us now examine VAT registration in case of a chain transaction through a concrete example.

Chain transaction involving a Hungarian seller and two third‑country partners

A non‑EU (third‑country) company (“Party B”) has products manufactured by its Hungarian business partner (“Party A”). Upon completion of production, the goods are not delivered to the ordering party but are shipped directly to the United States to the final customer (“Party C”), which is a US company, also established in a third country. It is important to note that the transport is organised and ordered by the final customer (“Party C”).

Since the essence of chain transactions is that the goods are transported from the first seller to the final customer in a single shipment, while ownership is transferred multiple times, the above arrangement qualifies as a chain transaction. Three parties (A ➝ B ➝ C) participate in consecutive supplies, while the goods are physically transported only once, directly from A to C.

Which supply qualifies as VAT‑exempt export?

Under Hungarian VAT rules – particularly Sections 26 and 89 of Act CXXVII of 2007 on Value Added Tax – only one supply in a chain transaction can be linked to the transport. This is the so‑called “moving supply”, which may qualify as VAT‑exempt export. The remaining supplies qualify as “non‑moving supplies” and are taxable in the relevant country.

The party organising the transport determines which supply in the chain qualifies as the moving supply. In the present case, the transport is attributable to Party C and to the supply where Party C acts as the purchaser. Accordingly:

• The VAT‑exempt export supply is the B ➝ C transaction, where a third‑country company sells the goods to the UScustomer.

• The A ➝ B supply is performed in Hungary and qualifies as a domestic taxable transaction, since the goods are dispatched from Hungary directly to the United States, but the transport (i.e. the VAT‑exempt export) is not attributable to this supply.

Consequence: obligation to register for VAT in Hungary

In the A ➝ B transaction, Company A must issue a VAT invoice for the sale of goods, applying Hungarian VAT at the standard rate (generally 27%). In other words, reverse charge does not apply, and normal VAT taxation is required. As a result, third‑country Company B makes a domestic taxable acquisition of goods in Hungary. Based on this, VAT registration in Hungary in case of the chain transaction becomes mandatory for Party B. This also means that, in addition to applying for a Hungarian VAT number, the company must appoint a fiscal representative.

Why is a fiscal representative required?

If a non‑EU company is required to register for VAT in Hungary, Hungarian legislation allows this exclusively through fiscal representation. The company must appoint a fiscal representative established in Hungary and holding the appropriate authorisation, who:

• represents the company before the Hungarian tax authority,
• submits the required VAT returns,
• shares joint and several liability for the tax obligations in Hungary, and
• ensures compliance with applicable legislation.

The fiscal representative bears responsibility for the fulfilment of tax obligations and represents the third‑country company in all Hungarian tax matters at the Hungarian tax authority. This regulatory framework serves the security and transparency of the Hungarian tax system and provides safeguards for the tax authority regarding compliance.

The fiscal representative not only provides technical assistance but also legal and tax security for the foreign company. Choosing the right representative is therefore not merely a compliance obligation, but also a strategic business decision.

As demonstrated in this article, in a chain transaction the party organising the transport plays a decisive role in determining which supply qualifies as export and which constitutes a taxable domestic supply. Precise knowledge of logistical details, particularly in international transactions, is therefore critical for effective tax planning. With decades of experience, the tax advisers of WTS Klient Hungary not only assist in identifying the parties involved even in complex chain transactions, but also provide reliable fiscal representation for third‑country companies and support VAT registration in case of chain transactions. Feel free to contact us with confidence.

This article is for general information purposes only and should not be considered as advice.