Where does the process stand now?

The ViDA package, aimed at modernising the EU’s VAT system and cutting VAT fraud, was proposed almost two years ago and presented to the Parliament by the European Commission last November. On 24 July 2024 the European Parliament published its legislative opinion, approving the Commission’s proposals with a few amendments. If the Commission agrees with the amendments and makes no further changes, it will forward its position to the European Council and the national parliaments.

The Parliament’s proposals contain minor additions and clarifications to the ViDA package, mainly concerning data security and the handling of personal data. For example, under the proposed amendments, the data collected by the new systems can only be stored within the EU, and the data reporting requirements do not apply to defence and national security contracts. The processing of and access to data on private purchases would also be restricted to protect privacy.

Main objectives of ViDA package

In our previous article we covered the three main objectives of the ViDA package:

• the introduction of digital reporting, mandatory e-invoicing for cross-border transactions;
• updated VAT rules to meet the challenges of the platform economy;
• the introduction of single VAT registration.

Below are some of the other new features expected in relation to the three objectives.

Digital data reporting

The recapitulative statement will be replaced by digital reporting, as this must be forwarded for each transaction carried out by the taxpayer no later than three working days from the posting date in their accounts or from the date on which the invoice should have been issued. So there is now no need for the recapitulative statement.

Member States may allow the issue of e-invoices in other formats in accordance with the Directive, but each Member State must also adopt the single European standard as well. They may require that electronic invoices be issued for domestic transactions too.

The provisions of the ViDA package for digital reporting are expected to apply from the beginning of 2028, and be implemented into national law by the end of 2027.

Single VAT registration

The single VAT registration aims to reduce administrative burdens and eliminate registration obligations between Member States. To this end, the ViDA package removes the call-off stock simplification, which until now allowed a seller established in another Member State to hold call-off stock in Hungary without registering. However, removing the simplification does not mean the permanent abolition of this option, since by extending and amending two existing regulations, the same scheme can still be set up, avoiding the registration obligation.

An existing option would be made compulsory by an amendment to the ViDA package, according to which if a taxpayer without a VAT identification number in the Member State where the VAT is payable supplies a taxable person who has a VAT identification number in that Member State, then it is compulsory to apply the reverse charge mechanism. In other words, for a reverse-charge purchase in Hungary, the buyer would pay the tax instead of the seller, so this system ensures that the supplier does not have to register in the Member State if they don’t have a tax number there. Of course, the taxpayer can still choose to register in that Member State. Since this type of reverse-charge purchase had to be reported in the recapitulative statement so far, the purchaser will soon have to provide such information in the form of digital reporting.

One-stop shop system

The ViDA package expands the one-stop shop system to the transfer of own products to another state. Goods transferred in this way are considered to be tax-exempt acquisitions in the destination Member State. Taxpayers must register in the Member State where they are established, and report any changes to such activities, for instance the start and end of activities. The unique VAT identification numbers previously issued must be used, and VAT returns submitted electronically every month in the Member State that issued the number.

With the extension of the one-stop shop system and the application of reverse charging in Hungary, taxpayers who previously used call-off stock will still be able to avoid registration in the country of destination. The new system could also benefit products with a longer rotation period, as there is no 12-month deadline on sales.

The phasing out of call-off stock is expected to be one of the first steps, with Member States adopting and publishing the laws, regulations and administrative provisions necessary to abolish the call-off stock rules by 31 December 2024 at the latest.

The VAT experts at WTS Klient Hungary with their decades of professional experience can effectively support their clients not only with Hungarian but also international VAT regulation. Do not hesitate to contact us if your company is involved in international, intra-EU transactions, and you have questions about what changes you need to prepare for under the new rules.

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Registration of taxable person in Slovakia

In accordance with the proposed amendments to VAT Act of Slovakia, the rules for registration of both Slovakian and foreign taxable persons will undergo significant changes. A Slovakian taxable person will become a taxable person as soon as the prescribed criteria are met and not on the date specified in the tax administrator’s decision. The threshold for income above which a Slovakian taxable person is obliged to submit an application for registration, has been raised from EUR 49,790 to EUR 50,000 or 62,500. The time period for submitting an application for registration is also shortened, i.e. within 5 days from the day a reason for registration arises (i.e. exceeding the prescribed criteria). The tax administrator will issue a registration decision within 10 days.

The conditions for the registration of a foreign taxable person will also change according to the proposed amendments to the VAT Act of Slovakia. Now such a taxable person is obliged to submit an application for VAT registration without delay, and the tax administrator is obliged to register the taxable person immediately after receiving the application.

Financial leasing, reverse-charge on import of goods, late registration

The new rules in the VAT Act of Slovakia will also affect the treatment of financial lease contracts where, at the time of conclusion, the purchase at the end of the contract represents the only economically rational choice for the lessee. Such a transfer will constitute a supply of goods and not a service.

It is also planned to introduce a reverse-charge mechanism for import of goods for domestic taxpayers who have the status of an authorised economic operator in the Slovak Republic. As a further simplification, special taxation scheme for small businesses will be introduced, as well as the possibility to deduct tax on the basis of a document other than an invoice when acquiring goods from another Member State.

Another significant change in the VAT Act of Slovakia is the introduction of some relatively strict rules for late registration as a taxpayer. The new legislation proposes to submit individual monthly tax returns for this period, together with a control statement containing the transactions on which tax liability has arisen. Once the conditions have been met, the deduction of the related input tax will be allowed.

Further changes to the VAT Act of Slovakia

Finally, the amendment would also introduce a number of minor changes, namely:

• The value of the simplified invoice is reduced to EUR 400;
• The obligation to reimburse VAT in the event of theft will be extended to any case of theft or misappropriation;
• It is proposed to change the place of supply of cultural, educational or entertainment services if they are supplied online/virtually to a non-taxable person.

Most important amendments to the Income Tax Act of Slovakia

One significant change that will affect the preparation of the 2023 tax returns in Slovakia is an amendment that will allow the deduction of employers’ expenses for the operation of their own kindergartens and childcare facilities for children up to three years of age. The employer must therefore be the founder of the facilities in question.

At the same time, the concept of ‘sports professional’ is introduced into the Slovakian law. The income of such a sports professional will be subject to withholding tax. As in the case of income from the creation and from the performance of an artistic work, the possibility will be introduced for the taxpayer to agree that no withholding tax will be levied and the sports professional will declare the income in the tax return.

The new rules will also affect the scope of taxation of incomes from non-state bond accruing to taxpayers with limited tax liability. The income in question will not be subject to tax since 2023.

With effect from April 2024, the range of buildings that are not treated as depreciable tangible asset is extended. In accordance with the new wording of the provision in question, small buildings for agricultural, forestry or hunting purposes and simple buildings for these purposes will not be regarded as depreciable tangible assets.

The amendment also introduces an exemption from taxation for in-kind income in the form of acquisition of shares by employees in start-ups.

Further changes to income taxation

Other amendments to the Slovakian Income Tax Act include the following:

• Changes to the taxation of virtual currency;
• Expansion of the range of tax-deductible expenses in the taxation of income from capital property;
• Extension of the exemption to income from the sale of stocks;
• Increase in the exemption limit for income from advertisements for charitable purposes;
• Changes in the tax bonus;
• Increase in the rate for dividends paid to an individual to 10%;
• Introduction of a minimum tax for corporations;
• Increase in the limit for the application of the reduced corporate income tax rate up to EUR 60,000.

If you want to know more about the 2024 changes to Income Tax Act and VAT Act of Slovakia or other tax issues in the country, we recommend you visit the website of Mandat Consulting, k.s. and contact the local WTS experts in Slovakia.

A Amendments to Income Tax Act and VAT Act of Slovakia from 2024 bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.

• In which country do you need to pay taxes on the revenue generated from using real estate located abroad?
• What tax obligations arise?
• Is a permanent establishment created for the lessor company in the country where the real estate is located?

We will answer these questions in our article, and highlight what a foreign company should pay attention to if it plans on renting out real estate located in Hungary.

VAT fixed establishment when renting out real estate

Renting out real estate in a country other than where the company carries out business activities, or using such property, does not necessarily create a VAT fixed establishment for the lessor.

In one of our earlier articles we explained the definition of a fixed establishment in detail based on the Hungarian Act on VAT and the implementing regulation of the VAT Directive. Pursuant to the directive, a fixed establishment is created for a company using real estate in the state the property is located if it has a geographically defined place at a fixed location where it carries out the business activity for a prolonged period, and where all the material and personnel conditions required to conduct the business activity independently are actually available on site. According to the implementing regulation of the VAT Directive, a fixed establishment is created if the service provider possesses a suitable organisation with a sufficient degree of permanence in terms of human and material resources to enable the provision of the services in the state where the real estate is located.

Based on the two rules, it is clear that in addition to the fact the rented out property is located in Hungary, the presence of the human resources and material conditions required for supplying services in the country of the real estate must be investigated further.

One important aspect is to what extent is renting out real estate a determining part of the lessor’s business activity, and does it in fact have the organisational framework enabling the supply of services connected to use of the real estate. If a detailed investigation finds that the above conditions are not met, no fixed establishment is created for the lessor foreign company in Hungary.

However, given that renting out real estate qualifies as a service related to real estate according to the implementing regulation of the VAT Directive, where the place of performance is the country the real estate is located in, then as a general rule, the value added tax incurred must also be paid in the country of the real estate. So for lack of a fixed establishment, the foreign lessor is only exempted from the obligation to register for VAT and pay VAT in Hungary if the lessee is a Hungarian taxpayer to whom the foreign company can issue an invoice subject to the rules on reverse charging.

If, however, the foreign company sets up a permanent establishment in Hungary as a result of renting out real estate, the foreign taxpayer must register and fulfil its tax payment liability in Hungary under the general rules. This entails substantial additional administration.

What about corporate tax?

While – from a VAT perspective – more careful consideration is required to determine whether renting out real estate gives rise to a fixed establishment, for corporate tax purposes the situation for taxpayers is relatively easier.

When assessing the creation of a corporate tax permanent establishment, both the provisions of the Act on Corporate Tax and the convention on avoiding double taxation concluded with the country of the foreign taxpayer must be examined.

Under the conventions on avoiding double taxation, revenue from real estate is generally taxable in the country where the real estate is located. Pursuant to Hungarian legislation, using real estate, transferring or selling rights and concessions in relation to real estate in exchange for compensation, as well as the in-kind contribution and sale of real estate create a permanent establishment.

From the combined interpretation of the above legislation, if a leased property is situated in Hungary, a permanent establishment is created for corporate tax purposes for the foreign lessor in Hungary, irrespective of the duration of the rental. The corporate tax must be paid in compliance with the Hungarian legislation, for which the taxpayer must register in Hungary.

Local business tax in brief

Given that used (rented out or leased) property, among other things, is considered a permanent establishment under the Act on Local Taxes, a permanent establishment is created for the foreign taxpayer in Hungary upon renting out real estate, so it is obligated to pay local business tax.

As revealed by our article, it is highly important to thoroughly investigate the renting activity if a company decides on renting out real estate located in a country other than where it conducts its business activities. However, if the renting activity is incorrectly classified, the given real estate is not considered a permanent establishment and the foreign taxpayer fails to fulfil the related registration and tax payment obligation, the tax authority can subsequently impose severe penalties on the entity. WTS Klient Hungary has decades of experience in international taxation and planning the tax arrangements of foreign companies, so feel free to contact us if you need tax advice and/or tax planning in connection with utilising a foreign company’s real estate situated in Hungary.

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Mandatory data on invoices

Regardless whether issued by invoicing software, or filled out manually from a printed invoice book, or as an e-invoice, invoices must always comply with the provisions of the VAT Act. The mandatory data content of invoices based on the effective provisions of the Hungarian VAT Act is as follows:

• date of issue of invoice
• date of performance, if different from the issue date
• invoice number
• issuer’s name, address and tax number
• customer’s name, address
• customer’s tax number (for reverse charge transactions, tax-exempt intra-community transactions and for invoices issued for resident taxpayers if the VAT reaches or exceeds HUF 100,000 – roughly EUR 308)
• description and amount of goods / services supplied
• net unit price (without tax) of goods / services supplied
• net value of invoice
• percentage and amount of VAT

Optional data:

• classification of goods / services supplied (customs tariff codes, SZJ, TESZOR codes)
• payment method
• payment deadline

Provisions on data content of invoices in particular cases

In special cases, such as invoices issued in foreign currencies, reverse charge transactions, tax-exempt intra-community transactions, cash accounting or self-billing, the provisions of the Hungarian VAT Act prescribe other mandatory data as well:

• for invoices issued in foreign currencies, the amount of VAT in Hungarian forints
• for reverse charge transactions, i.e. if the buyer of the goods/user of the services is the one liable for the VAT payment, the expression “fordított adózás” (reverse charge) shall be added
• for tax-exempt intra-community transactions, a clear reference to the fact that the supply of the goods / services is exempt from tax
• indicating the phrase “pénzforgalmi elszámolás” (cash accounting) if the taxpayer opted for cash accounting
• indicating the phrase “önszámlázás” (self-billing) if the invoice is issued not by the seller/provider (supplier) of the goods/services, but by the customer/user (buyer) of the goods/services
• in the case of newly-acquired means of transport supplied in the EU without charging VAT, the technical specifications of the vehicle
• indicating the phrase “különbözet szerinti szabályozás – utazási irodák” (margin scheme – tour operators) for the supply of travel organisation services
• indicating the phrase “különbözet szerinti szabályozás – használt cikkek” (margin scheme – second-hand goods) for the supply of second-hand movables
• indicating the phrase “különbözet szerinti szabályozás – műalkotások” (margin scheme – works of art) for the supply of works of art
• indicating the phrase “különbözet szerinti szabályozás – és régiségek” (margin scheme – collectors’ items and antiques) for the supply of collectors’ items and antiques
• if using a fiscal representative, the fiscal representative’s name, address and tax number

Deadline for issuing invoices

In general, invoices have to be issued within 15 days of performance (in the case of advance payments, the day the amount is credited qualifies as the performance date). If payment is made in cash or with non-cash payment instruments, however, the invoice has to be issued immediately. In the case of tax-exempt goods supplied within the community, and services where the user of the service is liable for the VAT, the invoice must be issued no later than by the 15^th day of the month following the performance.

Online data reporting

The online data reporting obligation was introduced in Hungary as of 1 July 2018. The issuer of the invoices is liable for reporting the data in the case of invoices issued to resident taxpayers with a VAT content equal to or more than HUF 100,000 (roughly EUR 308).

If the invoice is issued by invoicing software, the software must have a built-in function to fulfil the immediate data reporting obligation prescribed.

If invoices are issued manually from a printed invoice book, the data must be reported by the issuer of the invoice – generally within five calendar days. If the VAT content of an invoice issued manually exceeds HUF 500,000 (roughly EUR 1,538), the data must be reported the day after the invoice is issued.

Upon failing to comply with the data reporting obligation outlined above, or submitting reports that are incomplete, include mistakes or have false data, a default penalty of HUF 200,000 (roughly EUR 615) per affected invoice may be levied on private individuals, and HUF 500,000 (roughly EUR 1,538) per affected invoice on other taxpayers.

The accountants at WTS Klient Hungary have more than 20 years’ experience in helping the most varied types of client in accounting their invoices, and are as prepared as they can be to handle the challenges of online data reporting. We look forward to hearing from you should you need a reliable team of accountants to provide solutions specifically tailored to your and your company’s needs.

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Essence and purpose of new rule

According to the special tax reimbursement rule, taxpayers will have the opportunity to claim reimbursement of input VAT – that they cannot otherwise recover – no later than six months prior to the expiry of the limitation period.

Taxpayers lose this right after the deadline expires, and the request must be filed in writing. In the request, taxpayers will have to provide evidence that they cannot reclaim the input VAT in any other way due to reasons beyond their control. The Hungarian tax authority will approve the reimbursement if the VAT has been paid into the budget.

The aim of introducing this special tax reimbursement is to ensure that in line with the principle of fiscal neutrality, taxpayers can be completely relieved of the burden of input VAT charged in relation to the supply of goods and services entitling the deduction of taxes. Tax deduction rules are intended to ensure this principle is enforced. Yet in some cases, certain companies may still be unable to recover the VAT amount despite doing everything in their power.

When can the special tax reimbursement rule be applied?

The rule on special tax reimbursement may be applied, for instance, if the supplier of a company incorrectly charges VAT, instead of issuing a reverse VAT invoice, and the VAT is paid by the company to the supplier. The issuer of the invoice pays the VAT to the Hungarian tax authority, and the company receiving the invoice deducts this amount. At a subsequent tax inspection, the tax authority finds that no VAT should have been charged for the given service in the first place, so the company was not entitled to deduct said VAT. By default, the receiver of the invoice may claim the reimbursement of the unlawfully charged VAT from the supplier in such cases. If, however, the supplier has since been terminated or become insolvent, reclaiming the charged VAT becomes impossible.

Decision of the Court of Justice of the European Union

The new rule presented above is based on a decision of the Court of Justice of the European Union in a case involving a Hungarian party.

The Hungarian tax authority conducted an inspection at PORR Építési Kft. (PORR Building Ltd.), during which it found a VAT shortfall. The company accepted several invoices for construction activities, on which the service providers charged VAT. PORR Kft. paid the invoices to the service providers and deducted the amounts of VAT charged thereon, before reclaiming the VAT. However, the tax authority found that the business transactions on the invoices were related to construction activities, so the invoices should have been issued with a reverse charge. Consequently, a tax shortfall was established and a tax penalty with late payment interest was levied on the taxpayer.

PORR Kft. should have reclaimed the VAT unlawfully charged to it by the issuer of the invoices, who could have reclaimed the unduly paid VAT from the tax authority. However, in the meantime the suppliers had become insolvent and were under bankruptcy proceedings, so the company could not recover the unlawfully charged VAT. In PORR Kft.’s opinion, if we accept that the tax authority can deny the right of the invoice receiver to deduct the VAT without ordering the invoice issuer to apply a reverse charge procedure and correct the invoices at the same time, the receiver would have to pay the same tax twice.

The solution: special tax reimbursement

According to the Hungarian court involved in the case, before denying the company’s right to deduct taxes related to VAT paid erroneously to the invoice issuers, the tax authority must examine whether the issuers are able to correct the relevant invoices and repay the VAT included therein to the taxpayer.

Based on the decision by the Court of Justice of the European Union, the principle of fiscal neutrality and that of effectiveness is not violated if the tax authority denies reimbursement of unduly paid VAT without reviewing in advance whether the issuer of the invoices is able to repay the unlawfully charged VAT to the user of the services.

However, if the reimbursement of the unduly invoiced value added tax by the supplier to the recipient of the services becomes impossible or excessively difficult, in particular if the supplier is insolvent, those principles dictate that the recipient of the services may address their application for reimbursement to the tax authority directly.

When providing preliminary consulting on value added tax, WTS Klient Hungary helps its clients determine VAT burdens as part of even very complex transactions and situations. Please do not hesitate to contact us if you have any questions on the application of the special tax reimbursement rule, or on any other issues related to changes in VAT.

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When planning to buy property as a developer, you typically look for a piece of land or a building to be knocked down, and you generally have fixed ideas. But have you ever thought about the tax implications of the purchase in Hungary, or the subsequent tax implications of property development that you should bear in mind?

As finance professionals we often see that developers know very well during the planning stage what they subsequently want to implement, but they don’t know whether they should buy the property itself, or the company that owns it, whether they will have to finance the VAT, or will it be a reverse charge transaction. Without aiming to give an exhaustive summary, in this article I want to draw the attention of property developers to the tax implications of property development in Hungary, which may play a key role in their decisions.

Tax implications of buying property in Hungary

First, it is worth investigating how the property to be purchased is classified in the land registry, and whether the tax department of the competent local authority based on the location of the given property recorded it with the same status: is it a building lot or it is a property classified as an undeveloped area. If it is a building lot as per the VAT Act, you can only buy it from the seller paying VAT of 27%. If you buy a used property (possibly including a structure to be knocked down) based on the definition of the VAT Act, the acquisition basically takes place without charging VAT.

However, it is important whether it really is a tax-free sale/acquisition, or whether you as the buyer need to report the tax (reverse charge) as tax payable and deductible because the seller of the property chose a tax liability for the transaction that is essentially tax exempt under the law. The situation is simpler if you don’t purchase the property itself but acquire a share in the company that owns the property. In this case you won’t face complex VAT issues in connection with the purchase, but you have to be aware of the company’s “history” and tax risks.

Tax reporting obligations of property development in Hungary

As a newly established project company, in order to avoid any problems with reclaiming the VAT on services used and acquisitions during later procurements or developments, attention should be paid to the reports filed with the NAV as early as during the establishment of the company in connection with the tax liability of the subsequent presumed utilisation (property sale and leasing).

As a developer, the most important issue is the deductibility or reclaim of the tax related to product purchases and services used during the development. To this end, it is worth choosing a tax liability for all types of subsequent utilisation, and in respect of leasing and sale this reporting might even have to be made during the establishment of the new company acting as the buyer.

Tax implications of property utilisation in Hungary

If following your project you want to sell the apartment(s) in a residential block, you can currently do so at a preferential 5% tax rate, where VAT is charged in each case. No other taxation method can be selected in this case. But, if you are selling storage facilities or garages, these are sold with a 27% VAT rate.

If you primarily want to rent out the property built, and as lessor you selected the taxable status, the residential property will be rented out with a 27% VAT rate. In light of the tax rules, the possibility of reverse charging is not an option here. The renting out of garages or car parks is taxable in each case.

It follows from the above that you have to pay attention to many things during property development: it pays off if you consider the tax implications of property development as early as sitting at the planning table.

If you are interested in the details of tax planning before a property development along with the most frequent, tried and tested professional proposals and solutions, please contact us.

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A Tax implications of property development bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.

Importance of place of performance

If the business activity of a foreign company involves Hungary to some extent, it can happen that this involvement is of a nature or an extent that means a tax number must be requested to carry out the activity.

First of all, we always have to examine whether any of our international transactions have their place of performance in Hungary: tax payment obligations can only arise where legislation “establishes” a place of performance in Hungary. What helps is that the place of performance rules are identical throughout the European Union, but you still need to be aware of related local regulations as well.

Product supply

Things are easier with product movements: in these cases the place of performance is generally where the product is located when the transportation starts, or if there is no transportation of the product, then where it is when the sale is completed. In practice, if the product is physically located in Hungary and it is used (for example sold) in Hungary, then we can be quite sure that this is a transaction with a Hungarian place of performance, meaning that we need to request a tax number from the tax authority at the very least. It is important to note that purchasing a product from another EU Member State or from outside the European Union, or moving your own product, can result in a place of performance and a tax obligation in Hungary.

Special product transactions: chain transactions

The situation is different if the product is sold several times and the product is physically transferred from the first seller to the last purchaser. Judging chain transactions such as these requires complex expertise: actual transportation can only be linked to one sale in the chain, and only this sale can be tax free. All other transactions will be taxable in the country of dispatch or the country of destination.

If we notice that the physical movement of the product differs from its invoicing path, then based on knowledge of the parties involved and the actual movement of the product we have a good chance of determining correctly which country the place of performance will be in, and where the tax and possibly reporting obligations will fall.

Provision of service and reverse charge

If we provide a service to taxpayers as a foreign company, then in certain cases (for example, if the foreign company typically performs this work in Hungary for a lengthy period, at a specific place, using equipment and personnel, and therefore the foreign company has a VAT fixed establishment in Hungary) it can be important that the work is performed in Hungary. In this case, the foreign company is generally required to request a tax number in Hungary, and the VAT fixed establishment created as a result has to be registered.

In most cases, the place of performance rules result in a Hungarian place of performance when services are provided for a Hungarian taxpayer. However, generally speaking this does not mean the foreign company has to pay tax in Hungary and is subject to VAT registration in Hungary. According to reverse charge rules, in the majority of cases the Hungarian tax on these transactions is included by the Hungarian tax-paying customer in its tax return (generally both as payable and deductible tax simultaneously). This means that the foreign company does not have to register in Hungary provided the permanent establishment affected by the service is not in Hungary; the Hungarian tax-paying customer “takes care” of everything instead.

Finally, a brief example of how interesting VAT registration is: if a foreign company provides passenger transportation services to private individuals (organising bus trips to European cities from Hungary), then although there is a place of performance based on the route completed in Hungary, the foreign company does not have to pay tax because such services are exempt from tax by law; the registration obligation applies, however.

A Common situations – when is VAT registration unavoidable? bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.