Who needs fiscal representation services in Hungary?

Navigating the business world is not always an easy task, especially when engaging in cross-border activities. In this complex environment, the fiscal representative plays a key role.

As we have previously written in our series of articles on fiscal representation services, to mandate a fiscal representative is mandatory for companies established outside the European Union (e.g. China, United States of America, United Kingdom, Switzerland, etc.) that wish to perform business activity in Hungary, but do not have a fixed establishment in the country. More precisely, companies established outside the European Union, and which do not have a location in any Member State of the European Union should mandate a fiscal representative in Hungary. According to the Hungarian VAT Act, these companies must appoint a fiscal representative in order to be able to fulfill their tax obligations in Hungary. It is important that the fiscal representative should be reported to the Hungarian tax authority and the fiscal representative must be also indicated on the issued invoice.

Thus, fiscal representation services are is especially important:

• for third country companies that sell products or services in Hungary and
• in the case of businesses that remotely provide electronic services to Hungarian individuals or companies.

For companies within the European Union, using fiscal representation services is not mandatory, but they can choose this option.

Why should a company outside the EU mandate a fiscal representative?

Since the convention on legal assistance between Member States is not applicable outside the European Union, companies established outside the EU are required to use fiscal representation services, i. e. appoint a fiscal representative. The fiscal representative shares joint and several liability for the activities and tax obligations of the businesses they represent in Hungary and is also responsible for any potential consequences.

The company providing fiscal representation services acts as the client’s permanent representative when fulfilling all tax-related obligations. This means that as long as the fiscal representation services exist, only the fiscal representative can act on behalf of the foreign company. The foreign enterprise may not act either personally or through another representative.

Thus, the fiscal representation service is a relationship of trust and responsibility between the business and the service provider.

Requirements for the fiscal representative

Fiscal representation services can only be provided by companies that operate as a limited liability company (LLC) or a joint-stock company (JSC) in Hungary and are listed in the Hungarian tax authority’s database as free of public debt.

In addition, the spring-summer 2023 tax package introduced in Hungary a tightening in the area of fiscal representation services, according to which companies must have a registered capital of HUF 150 million instead of HUF 50 million, or an equivalent amount of bank guarantee in the name of the fiscal representative only, in order to qualify as a fiscal representative. The fiscal representative must prove the existence of these conditions to the Hungarian tax authority at the time of the declaration of acceptance of the representation and annually thereafter during the continuous exercise of the activity.

The new conditions had to be met by 1 January 2025 by taxpayers who were already registered as fiscal representatives at the Hungarian tax authority when the amendments entered into force.

What are the tasks of a fiscal representative?

• participating in the Hungarian tax registration process
• opening a bank account for the represented company (since the Hungarian tax authority transfers VAT refunds to foreign businesses exclusively to this account)
• reporting the represented foreign company to the Hungarian tax authority’s key taxpayers directorate (in Hungarian: NAV Kiemelt Adózók Adóigazgatósága)
• managing tax returns
• maintaining communication with the authorities
• providing advice on various aspects of taxation

The tax consulting team at WTS Klient Hungary has considerable expertise and many years of experience in the field of fiscal representation. We can also assist you with acting as a permanent representative before the Hungarian tax authority, preparing VAT returns, supporting compliance with special invoicing regulations in Hungary or performing VAT analysis and consulting on international and domestic transactions. Please contact our experts.

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When Excel is no longer enough… 

Many businesses use various databases and records, even in addition to their existing integrated systems. Generally speaking, a lot of ad hoc information, or information that cannot be integrated into ERP systems (Enterprise Resource Planning) is generated; this issue can only be solved in the long run and at some expense by means of a system development. These raw databases are usually brought together into a spreadsheet by an IT-savvy employee, and presented in a digestible format. These summary spreadsheets are often so successful that they are then used more widely, for more tasks, and by more users within the company. This is when the time comes that Excel is no longer sufficient. One common need is to be able to manage multiple concurrent users or have structured data integration (even across multiple projects), which is not really feasible in an Excel environment.

MS Access – one small step for an IT professional, one giant leap for the company 

In my experience, most receptive, IT-minded users have no difficulty in familiarising themselves with the world of Microsoft Access, i.e. MS Access. With a minimum of training you can start with the basics, it is not difficult to move from Excel spreadsheets to the world of databases.

MS Access is an excellent tool for implementing small IT projects. It allows multiple users to work with the same data at the same time. Thanks to the database, the data is presented in a structured and integrated manner. There are a number of interfaces, interoperability with other MS products is easy, and it is a well-documented, visually transparent and easy-to-learn system.

For more complex tasks you may need some expertise in the programming language Visual Basic, but if you’re familiar with Excel macros, this won’t be alien to you either.

Business modelling 

Excel spreadsheets are often used in areas of business where there is no industry-specific or specially tailored IT solution. Developing a comprehensive integrated solution is extremely costly and time-consuming, and it is only worth starting once the processes have been fully clarified and the complete specification is available. If a company gradually migrates its existing spreadsheets from Excel to an Access database environment as an intermediate step, it essentially models the content and correlations of the business data. The work invested will pay off later when planning the integrated system, as designing the data structures is a significant part of the specification.

When MS Access is no longer enough… 

It should be noted that the MS Access environment is designed for smaller tasks. The number of concurrent users is limited to 255, but it’s worth keeping it under 20 because the database size is also limited to a maximum of 2 GB. It only runs in a Windows environment with a client-server architecture. Despite these constraints, it is a flexible tool for business automation and integration tasks, enabling simpler IT tasks to be performed within the company.

The specialists at WTS Klient Business Automation provide help with integrating data as efficiently as possible and optimising processes, as well as supporting our clients with creating effective digital business projects, even independently. Feel free to contact us.

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Advantages of database of companies with no public debts

Inclusion in the database has many benefits. Participating in certain tenders or public procurement procedures may be subject to the tenderer being included in the database of companies with no public debts. In some cases, there is also a legal provision related to inclusion in the database. For example, according to the EKAER regulation in Hungary, companies included in the database are exempt from risk collateral.

Conditions of the database of companies with no public debts

Companies must apply separately for inclusion in the database of companies with no public debts using the KOMA form. This application is free of charge, and can be submitted at any time during the month. As a general rule, the NAV examines the debts and makes decisions about including or deleting the companies concerned on the last day of each month. The KOMA database is updated on the 10^th day of each month.

The following conditions related to the taxpayer are examined by the NAV based on the application submitted:

• no net tax debts or public debts registered with the NAV,
• tax return and payment obligations fulfilled or being fulfilled,
• not subject to bankruptcy, voluntary liquidation, involuntary de-registration or liquidation proceedings,
• as a taxpayer group it has no VAT or corporate tax debts,
• as a taxpayer it has no overdue tax debts.

If the taxpayer meets the above conditions, it will be included and will continue to be included in the database; no separate notification is sent. The NAV may also send a rectification order regarding the above application to the company’s online document storage facility. Generally, a deadline of 10 days is set to rectify any shortcomings. If these are not rectified, the NAV adopts a decision rejecting the admission to the database.

If the taxpayer is already in the database but does not meet any of the conditions at the end of the month, it will be deleted from the database. The NAV sends notification about this via the business gate. In this case, once the rectification ensues, the taxpayer can apply to be re-listed in the database.

Relief in event of emergency

Currently, the relief introduced in relation to the coronavirus pandemic in Hungary may also affect the inclusion of companies in or their removal from the database. According to the relief, if companies submit an extension request they are allowed to submit their returns and pay the corporate tax, small business tax and the innovation contribution until 30 June 2021, without any legal consequences for their default. If a taxpayer is removed from the database for failure to submit a return, but the NAV accepts the extension request, the taxpayer is subsequently re-listed in the database.

In some cases, companies not included in the database can be subject to sanctions so it is important to pay particular attention to ongoing compliance with the conditions of the KOMA database. It is recommended to check the tax account on a regular basis to make sure that tax payments and returns are in order. In addition to the benefits for your own business, the database of companies with no public debts can provide information about the reliability of a new business partner, so it is also worth using the database to obtain information about prospective partners.

Feel free to contact us if you have any questions about the Hungarian KOMA database, the conditions for inclusion in the database, or about checking your tax account, we’re here to help!

A Database of companies with no public debts bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.

What does comparative data reveal? 

Using comparables methods, the value of a company is determined based on data from third parties. The comparables methods are based on market data. Simply put, the value of a company is assessed based on the current selling price/prices or the stock exchange price of a similar company or companies.

What are the comparables methods?

Basically, the comparables approach constitutes two groups of methods:

• Comparative analysis supported by indicators
• Use of precedent transactions

The essence of the comparison based on indicators is that a company’s value can be assessed based on the stock exchange price of listed companies and using certain indicators. Valuation based on the P/E ratio, i.e. the price/earnings ratio, is the most common method of indicator-based valuations. The business value is calculated by dividing the stock price of the comparable companies with their taxed earnings per share, and then using the average of the available P/E ratios of the compared companies to multiply with the ordinary profit of the company being valued.

Using precedent transactions is a much simpler method that relies on historical data from databases.

Source of comparative data

This procedure is carried out by querying and evaluating comparative figures from various publicly accessible data sources or stock exchange databases. Databases are generally only accessible by paying considerable subscription fees or query charges.

What correction elements are necessary? 

To avoid the pitfall of comparing apples and pears, the different nature of the company being valued from the companies involved in the comparison means that correction elements have to be applied to reach the most realistic business value possible. It is easy to see why the simple comparison of a family business and a listed company operating in the same sector is not advisable, simply because of their differing sizes and market shares. For similar reasons, different exposure to third-party funding can also affect the value of a business. What is also important during a valuation is whether you are buying an entire company or only part of its shares/holdings. All these aspects can be taken into account by modifying the comparable values and applying associated multipliers. However, quantifying these modifying multipliers is the biggest challenge of this method.

What are the strengths of the method?

The undeniable advantage of comparables methods lies in their simplicity. Using the comparative data available, the valuation can be conducted remarkably fast. Given the use of public data or figures from accessible databases, the valuation result is less subjective than with other methods.

What are the disadvantages of the method?

The weaknesses of the method are as follows:

• Accessing comparative data is costly.
• Data in the given sector is not always available in sufficient amounts.
• The less comparative data there is available, the more we have to factor in specific impacts during the valuation.
• This valuation does not take into account the future potential of the company.
• It does not consider the company’s strategies for the future.
• In the case of profitability indicators, the company’s profit/loss figure can be influenced by accounting measurement methods, so it may not always offer an objective benchmark.
• Defining the right extent of correction factors is difficult.

Based on the pro and contra arguments highlighted above, it is clear that the comparables methods are the fastest and simplest ways of determining business value.

If you would like to learn more about business valuations or the valuation of a specific company, please contact our financial consulting experts.

A Business valuation based on comparables methods bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.