1. Where did the transaction take place?

The deadline for reclaiming foreign VAT applies mainly to VAT charged in European Union countries, because this is essentially what can be reclaimed if the VAT on the service or product is deductible under the laws of that country.

However, Hungary has reciprocity agreements with several non-EU countries, which also allow us to reclaim value-added tax charged in Norway, Liechtenstein, Switzerland, Turkey, Serbia and in the United Kingdom.

2. What conditions must be met?

The main point is that the Hungarian company should not engage in any business transaction in the given foreign country that would result in a permanent establishment in that country. Since in this case, it may be necessary to establish a business presence in the foreign country, even in the form of a tax establishment, a branch or a subsidiary. This always depends on the local tax regime and legal system. This would mean that the given company would have to reclaim the VAT charged in the foreign country in a local VAT return.

3. Most typical transactions

Reclaims can be submitted for all foreign transactions where the Hungarian company received a local VAT invoice, i.e. the place of performance for VAT purposes was the foreign country. This can be the purchase of a product in a given country, if the product was not subsequently sold or transferred to another country, or used in any business transaction in that country. The tax may also be linked to services used abroad by a posted employee (taxi, accommodation, possibly meals, fuel).

4. Deadline for reclaiming foreign VAT and relevant period

The deadline for reclaiming foreign VAT in the case of European Union countries is 30 September (for countries with reciprocity arrangements, the deadlines may differ), and there is no right of redress. Invoices for 2022 can be submitted to the authority in 2023, and the reclaim period cannot be shorter than three months or longer than one year.

5. How and where to submit

Reclaims by Hungarian companies must be sent to the Hungarian tax authority electronically using the ELEKÁFA form (a separate application for each country). For an annual application, the amount requested must be at least 50 euros.

Generally speaking, the Hungarian tax authority will forward the application electronically to the tax authority of the country concerned, which will then assess the merits of the application. If you exercise your right to reclaim based on a reciprocity arrangement, reclaim requests should be sent directly to the tax authority of the foreign country.

The tax authority in the country of the reclaim will issue a decision within four months of the deadline for reclaiming foreign VAT, and communication between the foreign tax authority and the Hungarian company is now entirely electronic. The tax authority may request additional documents and information no more than twice in this procedure (copies of invoices do not usually have to be attached to the original application).

+1: What have I got to lose?

In short: nothing. If the claim is unfounded, the tax is not refunded. There is no penalty for an incorrect application. However, there may be a risk if the Hungarian company is involved in a transaction in which the tax authority determines – based on the invoices and declarations it receives – that the company should register as a taxable entity in the foreign country and file a tax return. In this case though, the tax may also become refundable in the foreign tax return.

If you need help in managing the procedure and meeting the deadline for reclaiming foreign VAT, please do not hesitate to contact us. Our tax department will be happy to help you with submitting your applications.

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What is the point of reclaiming foreign VAT?  

Reclaiming foreign VAT happens when taxpayers established in Hungary do not receive a VAT-free invoice on services used abroad and goods purchased abroad in certain cases, but one that includes the local VAT (e.g. VAT on accommodation, food, taxi fares, tool costs). In such cases, Hungarian taxpayers may reclaim the foreign VAT included on the invoice (to the extent the supply of goods or services was used for the purpose of their taxable business activities). However, this foreign VAT is not reclaimed in the Hungarian VAT return, but by filing a separate application.

For which countries is it possible to reclaim local VAT? 

Hungarian taxpayers can apply (on a reciprocal basis) for a refund of the above-mentioned local VAT charged in the following countries, in addition to the Member States of the European Union: Norway, Switzerland, Liechtenstein, Serbia, Turkey and, following Brexit, the United Kingdom.

Where should applications be submitted, and by when?

It is important to note that while applications for VAT refunds from EU Member States must be submitted electronically to the Hungarian tax authority (on form “ELEKAFA” – separate application required per country), which forwards them to the competent tax authority of the refund country, applications made on the basis of reciprocity must be submitted directly to the competent tax authority of the country concerned, according to the rules of that country.

The deadline for submitting applications for refunds from EU Member States is 30 September of the year following the refund period.

The deadline may differ from 30 September for refunds from countries outside the EU.

What conditions must Hungarian taxpayers comply with when reclaiming VAT from EU Member States?

The basic condition for a refund is that the taxable person must not have a registered seat or permanent establishment during the refund period from where its economic transactions are carried out in the Member State of the refund. In the absence of a registered seat and permanent establishment, the taxable person must not have their residence or habitual abode in the territory of the Member State of the refund during the refund period.

Another condition is that during the refund period (apart from a few transactions), the taxpayer must not have supplied any goods or services that are deemed provided in the territory of the Member State where the refund is requested.

Useful information on applications 

Council Directive 2008/9/EC contains provisions on the reclaiming of foreign VAT charged in the Member States of the European Union. Thus, among other things, this directive provides for the content of applications too.

The provisions of the above directive have been transposed into national law by the Member States, but the local rules on applications and the documents to be attached may differ from one Member State to another (not all Member States require a copy of the invoice to be attached if the tax base is equal to or higher than EUR 1,000, or its value in the national currency). It is therefore advisable to check the local rules in the Member State of the refund before submitting your application.

The refund period specified in the applications must not exceed one calendar year, and must not normally be less than three months. These applications also come with minimum refund amounts. The refund amount cannot be less than EUR 50 for an annual application, and EUR 400 for a three-month application.

Adjudication of applications 

Applications submitted to the tax authority of the Member State where the entity is established are forwarded by the tax authority to the tax authority in the Member State of the refund, which sends an electronic response to the applicant confirming the acceptance of the application.

The tax authority in the Member State of the refund then normally has four months to examine the application and make a decision. If additional information or documents are needed to make a decision, the tax authority will ask for them from the applicant by means of a rectification request. The deadline for this is one month, which generally cannot be extended. The tax authority may request additional documents and information twice, in which case it must adopt its decision on the request within eight months of the date the tax authority receives it. The applicant must be paid the accepted amount within ten working days.

We will be happy to assist you with reclaiming foreign VAT and with subsequent procedures in the case of both domestic and foreign refund requests, and we will gladly provide further information regarding the detailed rules as well.

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Registered office

The definition of registered office, permanent establishment and branch office are set out in Section 7 of Act V of 2006 on Public Company Information, Company Registration and Winding-up Proceedings (Companies Act).

The registered office is the company headquarters entered into the company register. It is the company’s mailing address, the place where its business and official documents are received, filed, safeguarded, archived, and where the obligations set out in specific other legislation for corporate headquarters are satisfied. The company must display a signboard or at least a mailbox to indicate the registered office. For the purpose of company registration procedures, the registered office is also the Hungarian branch office for foreign companies, the direct commercial representation of foreign entities and the permanent establishment for European Economic Interest Groupings.

As a general rule, a company is only entitled to designate a property in the articles of association as its registered office – as well as a permanent establishment or branch office – that it either owns or has the right to use based on an agreement. Such an agreement may be a contract for rent or a contract for registered office services.

Registered office services

In line with the Act on Rules of Taxation in Hungary, the use of registered office services must be reported to the National Tax and Customs Authority (NAV) if the legal relationship for registered office services was established or changed after 1 January 2017.

Self-employed persons must make a written declaration on the use of registered office services when they register at the NAV. Taxpayers registering through the court of registration must also declare the use of a registered office service in writing directly to the NAV within 15 days of the date of registration. Registration and change reporting may be submitted on forms ’T101E and ’T201T. When using such services, entities must report the name, registered office and tax number of their registered office service provider, as well as the start date and, in the case of a fixed-term engagement, the end date of the legal relationship.

Based on Hungarian Act LIII of 2017 on the Prevention and Combating of Money Laundering and Terrorist Financing, only service providers that have reported their activities to the designated supervisory authority may provide registered office services.

The amendment effective as of 10 June 2021 stipulates – as a legal consequence of declaring a registered office service provider not included in the register of the supervisory body – that if the taxpayer fails to register another suitable registered office despite notification from the NAV, or fails to withdraw its registration of the use of a registered office service, its tax number will be cancelled.

Let us look at the details of the above rule. If the taxpayer declares a registered office service provider not listed in the supervisory body’s register, the NAV will call on the taxpayer to declare another suitable registered office or to withdraw the registration of the registered office service used. The amendment allows for this because in a significant number of cases, taxpayers do not declare a contract for registered office services in accordance with the regulations, but rather a simple contract for renting real estate. In this case, there is no reason to require the taxpayer to register another, suitable registered office, it simply needs to withdraw the declaration of the incorrect registered office service (within 15 days). If the taxpayer does not comply with the request, its tax number will be cancelled.

The tax number cannot be cancelled if the taxpayer has restored the legally compliant status before the decision to cancel the tax number becomes final.

Permanent establishment

According to the Hungarian Companies Act, a permanent establishment of a company is a place set out in the company’s articles of association where it carries out its activity and is a permanent and independent establishment located in a different place but in the same municipality as the registered office. If the company has a permanent establishment or a branch office, it must be entered into the business register.

In practice, therefore, any place where a company performs business outside its registered office is considered a permanent establishment.

Branch office

A branch office of a company is a permanent establishment that is located in a different municipality or (in the case of a branch office of a Hungarian company abroad) possibly in a different country than the registered office.

 Document storage location

The document storage location is the place where the documents, records, declarations, accounting and tax documents relevant for fulfilling the company’s tax obligations are kept and stored by the business owner. The company must notify the tax authority of this place or places, which can be done using the ’T201T or ’T201 forms. It is important to note that no PO Box can be specified as a document storage location.

If, in accordance with the Hungarian VAT Act, the business keeps documents, books or records that qualify as electronic invoices electronically, ensuring online access, this must also be reported to the tax authority on the ’T201T or ’T201 forms.

The documents may be stored at or transferred to another location only for the duration of accounting and data processing, but in the event of a tax inspection, they must be presented within three working days of the tax authority’s request.

Place of central administration

The place of central administration is the place where the administration, management and decision-making relating to the activities and operation of the business actually take place.

According to the Hungarian Corporate and Dividend Tax Act, the place of management is the place where the management is set up to manage the business.

The company’s articles of association may also stipulate that the registered office is the place of central administration (decision-making) too. Where the registered office is not the same as the place of central administration, the place of central administration must be indicated in the articles of association and the registration of the place of central administration in the company register must be requested. The transfer of the actual place of management abroad must be reported to the tax authority on the ’T201T or ’T201 form.

Nowadays, it is becoming increasingly common for a foreign company to move the place of central administration of its Hungarian subsidiary abroad, where decisions relating to the activities and operation of the company are actually made. However, these decisions have corporate tax implications, so in such cases it is worth consulting a tax adviser to help the company take the necessary steps and minimise the tax risk.

Although in simpler cases businesses do not have a branch office and their places of central administration and document storage are the same as their registered office, in practice – and in most cases – these are often separate. The different addresses of the company must be registered at the Hungarian authorities and must also be considered for taxation. If you have accounting questions related to the registered office, registered office services, various permanent establishments or branch offices, feel free to contact WTS Klient Hungary.

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Virtual currencies or cryptocurrencies have recently experienced a great boom all around the world. In response to the growth of this industry, more and more countries have started to introduce new regulations for crypto businesses to control the flow of cryptocurrencies and ensure greater transparency in their sourcing and uses.

With the same goal, the Estonian Money Laundering and Terrorist Financing Prevention Act was amended in January 2020. The amendments are due to come into force on 10 March 2020. The deadline for implementing the changes is 1 July 2020 for existing virtual currency activity licence holders. To comply with the new regulations, crypto businesses in Estonia have to meet the requirements described below.

Revision of internal Anti-Money Laundering procedures 

The management must determine whether new business relations are established with persons from outside the European Economic Area or with e-residents.

Data must be identified and verified with the help of information technology (separate regulation applies) where a business relationship is established with an e-resident, with a person from a country outside the European Economic Area, or with someone whose place of residence or registered office is in such a country (unless it is possible to carry out the identification face-to-face).

Appointment of a Compliance Officer 

The Compliance Officer must have the competence, means and access to relevant information across all structural units of the business.

Assessment of experience and business reputation of the management 

The so-called fit & proper test must also be carried out. The Financial Intelligence Unit will require documentation on the management’s level of education (at least secondary education), work experience, character and responsibilities of earlier posts, extra training, etc. The education, knowledge, experience and skills will be evaluated against the responsibilities and area of activity of the managers, in order to assess their ability to understand the risks and carry the responsibility derived from it. A business reputation is presumed to be good until proven otherwise. This is evaluated based on earlier activities such as media coverage, penalties, court dealings, participation in management of companies, etc. Reputation is deemed to be of a more permanent nature than current checks of criminal records, and therefore it is not subject to legal expiry provisions. The prerequisite for an impeccable reputation is the absence of any circumstance precluding a high reputation.

Business in Estonia 

The registered office of the company, the location of the management board and the place of business must be in Estonia. Another option is that a foreign company operates in Estonia through a branch which is registered in the commercial register and has its registered office and head office in Estonia:

• The registered office of the company as seen on the commercial registry is in Estonia.
• The location of the management board is in Estonia, meaning that essential functions of management and the control of money laundering are carried out, including the continuity of functions necessary for conducting business.
• The place of business is the actual location of the business and must include the location of the Compliance Officer. This does not necessarily have to match the registered office address. 

Other requirements

• Existence of a payment account with a credit institution, an electronic money institution, or a payment institution established in Estonia or a Contracting State of the European Economic Area providing cross-border services in Estonia or having established a branch in Estonia.

• The share capital of the company must be at least EUR 12,000. 

The Financial Intelligence Unit has the legal right to revoke an existing licence if it identifies non-compliance, e.g. if crypto businesses do not carry out their activities in Estonia or their management board is not located in Estonia.

Click here if you want to read the full article about the new requirements for Estonian crypto businesses on the homepage of Sorainen, the exclusive partner of WTS Global in Estonia.

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