Taxation of foreign webshops and EU law

The Hungarian retail tax has become one of the recurring points of conflict between EU law and Member State tax sovereignty in recent years. The debate has primarily focused on whether a revenue-based progressive special tax is compatible with EU law where, due to market structure, the actual burden is borne mainly by foreign-owned integrated retail chains. We have addressed this issue on several occasions, analysing the key lessons relating to progressive taxation, aggregation rules and the related infringement proceedings.

This article examines whether the rules governing the taxation of foreign webshops are compatible with the European Union’s fundamental freedoms, and whether they may result in discrimination against businesses engaged in cross-border e-commerce activities.

Road to an EU court case

In 2020, in the Tesco case, the Court of Justice of the European Union (CJEU) concluded that the progressive nature of the retail special tax does not in itself infringe the freedom of establishment. According to the Court, the fact that companies generating higher revenues are more likely to have owners from other Member States merely reflects the economic reality of the market and does not prove prohibited discrimination.

This legal dispute continued in the infringement procedure initiated against Hungary in relation to the Retail Tax Act introduced in 2020. As a result of the procedure, the repeal of the aggregation rule of the Hungarian Retail Tax Act has already taken effect as of 31 July 2026, including for the 2026 tax year. While the temporal scope of this amendment is understandable from a budgetary perspective, it does not provide a satisfactory answer regarding the EU compatibility of the rules applicable between 2020 and 2025, which remain unaffected. In our view, during that period the legislation infringed EU law, as it prevented foreign market participants from operating under the same business model used by Hungarian market players.

Beyond existing EU legal disputes

Interesting questions are also raised by the 2025 amendment to the Hungarian retail tax, which has not yet formed part of the EU compatibility disputes referred to above. This change affects not only the different tax treatment of integrated retail chains operating in Hungary and domestic franchise models, but also the taxation of foreign webshops and digital platform operators that are not established in Hungary for economic purposes.

Examples include:

• Amazon
• eBay
• AliExpress
• Alibaba
• Temu
• Shein
• Allegro
• Etsy
• Zalando
• About You

Until 2025, foreign sales of these businesses were simply exempt from Hungarian retail tax. Since 2025, however, Hungary has introduced a special progressive exemption rule, which has in practice led to a significant increase in tax liabilities for the affected businesses. Under the new rules, net sales revenues generated abroad also form part of the Hungarian tax base, while the corresponding tax amount may subsequently reduce the tax liability.

In the context of the taxation of foreign webshops, the question is therefore no longer simply whether a retail special tax may be progressive, but whether the regulatory approach whereby the legislator also takes into account the global revenue of these market participants when determining the Hungarian tax burden results in clear discriminatory treatment.

The 2025 legislative change: a departure from territorial logic

The original regulatory concept of the Hungarian retail tax was fundamentally territorial in nature. The connecting factor for Hungarian taxation was revenue from the sale of goods delivered within Hungary. This was consistent with the general tax principle that a state primarily taxes economic activities connected to its own territory.

However, the amendment effective from 1 January 2025 introduced a broader tax base definition for foreign retailers not established in Hungary. In these cases, the tax base includes not only turnover linked to Hungary but also the consideration received from the sale of goods delivered abroad.

Foreign revenue may push a taxpayer’s tax base into a higher tax bracket, after which the system provides a certain correction mechanism when calculating the tax. In practice, however, this more complex exemption mechanism has resulted in a significant increase in tax liabilities from one year to the next. This increase affects foreign retailers only, not domestic ones. As it applies exclusively to the taxation of foreign webshops, the progressive exemption mechanism has a discriminatory character, and the higher tax burden effectively results in a tax base exceeding domestic revenue becoming taxable in Hungary.

This issue also affects the retail tax obligations of platform operators.

Although the relevant provisions of the Hungarian Retail Tax Act do not expressly differentiate between domestic and foreign businesses, in practice they predominantly affect companies linked to other (EU Member) States.

A new dimension of non-compliance with EU law

The ongoing infringement procedure of the European Commission is primarily based on the argument that the Hungarian retail tax places foreign-controlled integrated retail chains and related entities at a disadvantage compared with businesses operating under domestic franchise systems. The discrimination arises because the aggregation rule introduced in 2020 for related entities prevents foreign businesses from restructuring their operations in a way that would enable them to achieve a similarly favourable tax position to Hungarian businesses.

The progressive exemption rule affecting the taxation of foreign webshops and platforms follows a different logic, but similarly places foreign market participants at a disadvantage compared with Hungarian businesses, potentially resulting also in an infringement of fundamental EU freedoms.

Could this open the door to tax refund procedures?

If the CJEU were to establish a breach of EU law, affected businesses could initiate special tax refund procedures. Under Hungarian tax procedural rules, taxpayers may request the refund of taxes paid on the grounds that the legislation establishing the tax obligation is contrary to EU law.

It is important to note that:

• it is not necessarily necessary to wait for the final CJEU judgment;
• procedures can already be initiated now;
• due to limitation rules, proper timing may be of critical importance.

This may be particularly relevant for businesses that have paid substantial amounts of Hungarian retail tax in recent years.

Our team of experts continuously monitors developments relating to the Hungarian retail tax, in particular the relevant communications and measures of the European Commission, the Court of Justice of the European Union, and the Hungarian government. Upon request, we are available to assist in clarifying strategic issues and potential procedural and enforcement options related to the Hungarian retail tax or the taxation of foreign webshops.

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Who is most affected by the retail tax?

The Hungarian retail tax, originally introduced during the Covid state of emergency, has progressive rate based on brackets, meaning that the higher the turnover, the higher the applicable tax rate. While large, predominantly foreign‑owned retail chains operating in Hungary as integrated companies or linked undertakings are subject to high and steeply increasing tax rates on their Hungarian turnover, domestic retailers often operate under franchise systems through numerous separate, legally independent companies. As a result, their turnover is not aggregated and they are taxed at lower rates.

The legislation does not allow foreign retail chains to “fragment” their activities in a similar way to domestic retailers in order to reduce their tax burden, as they are classified as linked undertakings. Consequently, their turnover must still be aggregated and the tax calculated on that basis.

The European Commission’s reasoning

Country‑specific recommendations have long criticised the retail surtax, as it selectively and disproportionately affects large, primarily foreign‑owned companies and distorts competition. Although Hungary committed to the gradual phasing‑out of the retail surtax, the government has nevertheless repeatedly extended its application, failed to set a clear deadline for its abolition, and even increased the highest tax rate.

In the Commission’s view, this places foreign‑controlled companies at a genuine disadvantage compared to domestic ones and restricts the freedom of establishment by deterring or hindering undertakings from other Member States from establishing themselves on the Hungarian market. The Commission sent a letter of formal notice to Hungary in October 2024, followed by a reasoned opinion in June 2025. As Hungary contested the infringement and did not amend the tax system, the Commission has now lodged an action with the Court of Justice of the European Union.

As a result of the government change, significant modifications to the Hungarian tax system are expected, which may substantially reshape companies’ tax and regulatory obligations. Should you require expert support in navigating this evolving landscape, please request a proposal from our tax consulting team.

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Personal income tax

Perhaps the change that will affect most people in the 2025 tax law amendments is that the monthly family tax allowance will increase in two stages, from 1 July 2025 to HUF 100,000 for one eligible dependant, to HUF 200,000 for two eligible dependants, and to HUF 330,000 for three eligible dependants. Then in the second stage, from 1 January 2026, the same amounts will rise to HUF 133,340, 266,660 and 440,000. 

Another change affecting personal income tax is the narrower scope of foreign individuals who will be eligible for the newlywed allowance and the under-25s’ allowance. In the future, these benefits will only be available to citizens of EEA countries, and non-EEA countries bordering Hungary.

For accommodation providers, the annual tax per room will increase to HUF 150,000 in municipalities where the number of overnight stays spent in the second year preceding the given year exceeded 2 million.

As we indicated earlier, under the 2025 tax law amendments a fixed part of the allowance provided by an employer to an employee under the age of 35 as housing benefit – to pay rent or to repay a mortgage – will be considered a fringe benefit from next year.

The scope of SZÉP card benefits has been extended in that SZÉP card funds can also be used for home renovations in 2025. Another change affecting SZÉP cards is that in addition to the general annual allowance of HUF 450,000, an Active Hungary wallet will be created, which can be credited with HUF 120,000 per year at a reduced tax rate. This amount can be used specifically for services linked to leading an active lifestyle.

Social contribution tax

Under the 2025 tax law amendments, social contribution tax will be payable on income from long-term investments (13% if less than three years, 8% for between three and five years, and 0% if more than five years).

In the case of the tax allowance for people entering the labour market, a Hungarian citizen – or a citizen of a non-EEA country bordering Hungary – who has been in an insured employment relationship or a sole proprietorship/partnership for a maximum of 92 days in the previous year, i.e. the 365 days before the month in which the employment starts, is considered to be entering the labour market. The allowance can be claimed in full for the first year, and at 50% for the following six months.

The 2025 tax law amendments also added a provision to the social contribution tax law stating that the tax payable by the payer shall be assessed quarterly by the payer and declared and paid by the 12^th of the month following the quarter, unless otherwise specified.

Act on Accounting

According to the amended Act on Accounting, the obligation to be audited is not mandatory in cases where the entity’s annual net sales revenue did not exceed HUF 600 million and the average number of employees at the entity did not exceed 50 people on average in the two financial years preceding the given financial year.

Furthermore, any contractual term or legal declaration that obliges the highest body of the entity to choose a specific auditor, audit firm or group of audit firms to carry out the statutory audit, or where applicable, audit the sustainability report, is void.

Advertising tax

The 2025 tax law amendments extend until 31 December 2025 the current 0% rate of advertising tax for taxpayers who are not media content providers, media service providers, publishers or outdoor advertising media, or are not exempt from paying the tax.

Act on Corporate Tax

Opportunities to support spectator team sports are now complemented by opportunities to support the running costs of sport infrastructure. In this case, the amount of funding may not exceed 80% of the running costs of the property, or the HUF amount equivalent to the notification threshold for operating aid for sport infrastructure in the EU Commission Regulation.

Value added tax

The 2025 tax law amendments reduce the number of instances in which an indirect customs representative can exercise the client’s right to deduct VAT in the case of imports. The provisions also clarify the detailed partner checking rules in relation to and as a precondition for assigning the right to deduct VAT. Such checks must be carried out by the indirect customs representative.

From 1 January 2025, the reverse charge mechanism will apply to supplies between taxable natural gas traders. The legislation imposes a reporting obligation on both the taxable person supplying the gas and the taxable person purchasing it. Transitional provisions will help implement this tighter rule.

By extending the current provision for a further two years, the 2025 tax law amendments allow for the application of a reduced 5% tax rate on the sale of new residential property until 31 December 2026. This is permitted by a transitional rule for construction projects that are delayed, provided that the building permit is final by 31 December 2026. If the construction activity is subject to simple notification, then application of the reduced tax rate is conditional on the activity being notified by 30 September 2024 (whereas in the case of simple notification under the Act on Hungarian Architecture, the activity must be acknowledged by 31 December 2026).

Amending Annex 10 to the VAT Act, the legislation stipulates that the data on incoming invoices required as part of VAT returns must now be provided in HUF, and not rounded, instead of the previous approach rounding to HUF 1,000. VAT returns will continue to include all the required data rounded to HUF 1,000, the change only affects the reporting of data.

Excise tax

The definitions of other tested mineral oils and diesel will change due to modifications made to the Combined Nomenclature (CN) code.

To meet the EU’s minimum tax, the 2025 tax law amendments modify the tax rates for certain energy products. Tax rates on tobacco products are also to increase.

The excise tax rate on alcohol products will be adjusted each year after 2024 in line with inflation. The same tax rate increases for energy and tobacco products will start after 2025 due to the 2025 tax increases.

Local taxes

The concept of permanent establishment is now amended for air passenger transport operators. A foreign entity resident in a country that is party to the Convention on International Civil Aviation signed in Chicago on 7 December 1944 will not have a permanent establishment in Hungary under the 2025 tax law amendments. According to the adopted amendments, this exemption will already apply to tax liabilities for 2024.

It is important to note that the provisions in the bill relating to the abolition of special economic zones were not adopted by Parliament.

Vehicle tax and company car tax

The new legislation introduces an annual indexing of the vehicle tax, according to which the tax rate will be calculated taking into account the amount of tax for the previous year and the change in the consumer price index for July of the previous year, as determined by the Central Statistical Office. The tax rates thus determined shall be published by the NAV on its official website by 31 October each year. This shall also apply to tax on vehicles registered abroad.

Under the 2025 tax law amendments adopted, the indexing procedure described for the vehicle tax will be introduced for company car tax as well. The NAV will publish the tax rates on its website by 31 October of the year preceding the given year.

Vehicles with environmental classifications 5N and 5P will be exempt from vehicle tax until 31 December 2026 and from company car tax.

Duty

From 2025, the legislative amendments ensure that the rate of duty on the acquisition of ownership of motor vehicles and trailers will be indexed.

The amendments also change the level of duties payable for first-instance civil proceedings, according to the combined scheme set out with defined bands. One key element of the amendment is that duties will be reduced for smaller cases of litigation – under HUF 10 million. Duties will increase for higher-value litigation, and the cap will be abolished.

Retail tax

From 1 January 2025, the scope of taxpayers shall be broadened to include non-resident or resident platform operators who provide a marketplace for sellers engaged in retail activities. The deadline for registration and the first advance payment is the 15^th day after starting the activity, which in many cases could be as early as 15 January 2025.

The taxpayer for the retail activity conducted via the platform will be the platform operator, not the retailer, namely the platform operators will become “quasi-vendors” for sales made via the platform. However, if a platform operator defaults on its tax liabilities and the tax debt cannot be collected from it, the retailer will be liable to pay the tax instead of the platform operator.

Registration tax

One important change is that the tax allowance for hybrid and plug-in hybrid vehicles as well as hybrid motorcycles will be removed from 1 January 2025.

The 2025 tax law amendments also put the assessment of registration tax onto new foundations from 1 March 2025. The tax rate for each vehicle will be the product of the environmental class multiplier and HUF 45,000.

As with many other taxes, the registration tax liability will rise in line with inflation from 2026, which essentially means an indexing of the HUF 45,000, rounded up to HUF 1,000. The NAV will publish the inflation-adjusted amount on its website by 31 October of the year preceding the given year.

2025 tax law amendments affecting the global minimum tax

As we previously indicated, global minimum taxpayers must register with the tax authority by 31 December 2024 using a form. The 2025 tax law amendments specify the information that must be included on the form. Please note that corporate groups applying the CbCR-based exemption with respect to Hungary are not exempt from the notification requirement.

However, one of the most significant changes to the global minimum tax, internationally known as GloBE, is the domestic obligation to pay top-up advances for those affected. This is because taxpayers have until 20 November 2025 to complete their tax return and advance tax payments for fiscal years beginning in 2024. If a taxpayer proves that they acted in good faith when failing to pay the tax advance, they may be exempt from the default penalty/tax penalty and late payment penalty.

The 2025 tax law amendments also include further GloBE clarifications (e.g. UTPR calculation formula, QDMTT calculation).

Amendment to Act CLII of 2017 on the implementation of EU customs law

One of the most significant changes in relation to EU customs law is that the legislator has clarified the conditions for VAT exemption.

The amendment enables the customs authority to grant, on request, exemption from VAT in customs administration procedures to a taxpayer acting in their own name who, at the time their application is assessed, fulfils the conditions laid down by law.

If an AEO (Authorised Economic Operator) licence cannot be used due to a suspension, then among other things, this exemption from VAT cannot be applied.

Amendments to Act CL of 2017 on Rules of Taxation

Based on the 2025 tax law amendments, in the event of a repeat offence the tax authority is obliged to close the given business, unless the taxpayer waives their right of appeal and pays a “penalty in lieu of business closure” in addition to the default penalty. This penalty is significantly higher than a simple default penalty:

• 10 times the default penalty for a 12-day closure
• 20 times the default penalty for a 30-day closure

If the taxpayer fails to comply with the conditions (waiving the right to appeal and paying the higher penalty), the tax authority will notify the taxpayer and close the business.

Small business tax

If an entity’s KIVA status is terminated due to a merger or division, but the taxpayer again opts for KIVA status, then the start of this taxpayer status is shifted to one day earlier than under the previous rules, to the date of the merger/division.

In this article, we have tried to provide a thorough summary of the most important parts of the 2025 tax law amendments that affect companies’ decision makers. If you have any questions about the rule changes detailed here, please contact the tax consulting team of WTS Klient Hungary who are always at your disposal.

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