Changes of taxation 2020 - VAT

Value Added Tax

The VAT rate of commercial accommodation services decreased to 5% (from the previous 18%).

The sale of residential properties once again incurs the general tax rate of 27%.

Reclaiming VAT on bad debts

The VAT on uncollectible trade receivables may be reclaimed within the procedure of a self-audit (within strict limitations and in the cases determined in the VAT Act). The tax base can be reduced subsequently with the pre-tax amount of the consideration recognised as a bad debt provided the delivery date of the product sale or service provision forming the basis of the bad debt is a date after 31st December 2015.

The following are regarded as bad debt:

• during the executory procedure conducted against the debtor there is no cover for the claim or the cover found only covers it in part,
• the claim was waived by the creditor within a settlement agreement during the bankruptcy proceedings, the liquidation proceedings or the debt settlement proceedings of local municipalities,
• based on the written confirmation (statement) issued by the liquidator, there is no cover for the claim, provided that a minimum of two years have passed since the start date of the liquidation,
• the assets taken over at the value of the asset distribution proposal at the end of the liquidation or the debt settlement procedure do not provide cover for the claim.

The tax base can be reduced subsequently with the amount of the pre-tax amount of the bad debt if the following conditions are met at the same time:

• the taxpayer has registered the claim in its books as a bad debt;
• the contracting parties shall be independent (their independence shall continuously exist);
• the customer shall be notified in writing in advance (except if the customer has been terminated without a legal successor), considering that the customer has to reduce the input tax deducted in relation to the claim in its tax return due at the time of receiving the taxpayer's notification;
• the taxpayer is not subject to a bankruptcy, liquidation, or compulsory liquidation procedure when it submits its tax return relevant to the bad debt;
• the buyer was not subject to a bankruptcy, liquidation, or compulsory liquidation procedureand its tax number was not cancelled on the date of performance of the transaction serving as the basis of the claim
• the buyer was not listed in the database of debtors with a large tax deficit or large tax debt on the date of performance of the invoice determining the claim or during the previous year;
• NAV (the tax authority) did not inform the taxpayer about the buyer's tax evasion behaviour before the date of performance of the original transaction;
• the taxpayer's claim has existed for at least one year;
• the amount of the claim has not been recovered in any other way; and
• the date of performance of the original transaction is a date after 31st December 2015.

During the self-audit the taxpayer shall make a declaration to the tax authority along with its tax return about the above data, as well as the name and tax number of the customer and the fact that the consideration of the claim has not been recovered in any other way.

Clarification of the conditions for tax-free intra-Community supply of goods

The condition for the tax exemption of the intra-Community supply of goods (as previously) is that the buyer-taxable person provides its VAT registration number of the other EU member state to the seller. According to the legal provisions, the existence of the VAT registration number is no longer merely a formal, but also a substantial legal condition for tax-free intra-Community sales. Thus intra-Community sales are tax-free if the buyer is a taxable person liable to pay tax and registered in another member state who has a tax registration number issued in the other member state, which it has provided to the seller.

It is necessary to check the validity of the customer's VAT registration number before the transaction and before the invoice is issued.

Furthermore, if the seller-taxable person has submitted its Community recapitulative statement incorrectly or incompletely, the tax exemption cannot be applied until the seller corrects the statement and at the same time proves that the mistake was not intentional.

It is a condition for tax-free intra-Community supply of goods to certify the delivery. As of 2020 the EU introduced uniform forms of certification, which are as follows:

• CMR document and the transport operator’s invoice if the seller assigns the transport operator;
• CMR document and the copy of the transport operator’s invoice, as well as the buyer’s statement if it is not the seller who assigns the transport operator.

Call-off stock

The conditions of the simplification rule of the Call-off stock (storage of the seller’s own goods in the warehouse of the future buyer) have become stricter:

• at the time of transferring the product the seller must know the identity and tax number of the potential buyer;
• the fact of the transfer of the product must be indicated with a separate code in the recapitulative statement (no invoice is yet issued at this moment, which is why information must be provided by the person making the statement);
• both the party transferring the product and the potential buyer of the product must keep detailed records;
• the buyer must recall the product within 12 months of delivery;

that is to say, if the buyer's removal of goods from the call-off stock, i.e. its sale to the buyer, does not take place within 12 months after the goods are placed in storage, the intra-community product sale related to the movement of the seller's own product takes place on the last day of the 12th month period, which generates a domestic tax payment obligation for the taxable person that transports the product abroad unless it returns the product or applies for a tax number in the destination country and pays taxes there after intra-community procurement, while declaring tax-free intra-Community sales in its own country. In the latter case, if the seller sells the product, it must charge the VAT of the other member state with its tax number issued in the destination country. In the case of products already stored in call-off stock maintained by foreign taxpayers in Hungary, this legal effect will definitely come into effect on 31st December 2020, which will generate the obligation for foreign taxpayers to register for VAT in Hungary unless they act as described above.

Change in the treatment of chain transactions

In the case of chain transactions, the intra-Community transport of the product can only be assigned to one sale and the tax exemption provided for sales within the Community must only apply to this sale only (sales with transport). In accordance with the main rule, this is the sale of products to an intermediary operator, where the intermediary participates in the sale in the capacity of buyer. As of 2020 the intermediate operator may only decide to participate in the chain in the capacity of seller if it provides the seller-taxable person with its tax number established in the member state where the product is dispatched from. (As a consequence of the above, if a Hungarian taxable person sells to a foreign taxable person and the foreign taxable person transports the product and the foreign taxable person provides its Hungarian tax number, then the sale by the Hungarian taxable person will be taxable in Hungary.)

Export-Import

As of 2020 the tax exemption may only applied in the case of services directly connected to both export and import on condition that they are provided directly to the person who performs the tax-free transaction related to the import.

It is now possible for the taxable person to have the export of the product outside the territory of the Community certified not by the authority of exit but also by the exporting authority.

Domestic reverse charge

As of 1st January 2021 reverse charge is terminated in the case of temporary employment, secondment and the provision of staff unless it is related to such construction assembly work and other installation work the purpose of which is the creation, expansion, transformation or other modification of real estate, regardless of whether the activity requires a building permit.

Online data submission, invoicing

As of 1st July 2020 the previous 15-day deadline for issuing invoices is reduced to 8 days, i.e. the invoices containing VAT must be issued (and, in the case of an advance invoice, the payable tax must be determined) within a maximum of 8 days after performance.

As of 1st July 2020the submission of data at invoicing level is extended to all invoices issued to domestically registered taxable persons about domestically performed transactions, i.e. the rule providing that data submission is only compulsory in the case of invoices containing output tax over HUF 100,000 is no longer in force. As a result, the domestic tax number of the domestically registered partner taxable person must be displayed on all invoices subject to the obligation to submit data.

As of 1st July 2020, data must be submitted about invoices issued by means of printing (in invoice pads) as follows:       

• Within 4 days (previously 5 days) in the case of invoices containing output tax below HUF 500,000;
• Within 1 day in the case of invoices containing output tax reaching the amount of HUF 500,000.

It is not obligatory to submit data about invoices issued to private individuals until 31st december 2020.

As of 1st July 2020 the data submission of incoming invoices is extended without an amount limit to all incoming invoices for which we exercise the right of tax deduction, i.e. these invoices must be included in the recapitulative statement forming part of the VAT return regardless of a value limit.

As of 1st July 2020 the obligation to issue invoices is extended to certain transactions that used to be tax-free before. The following transactions belong to those affected by the obligation to issue invoices:

• other education,
• the services performed by businesses providing human health services (only businesses),
• dental care, dental technician services,
• the sale of real estate,
• the services performed by the cooperating community to its members.

As of 1st January 2021 the obligation of data submission extends to invoices issued to non-taxable persons (that is, including invoices issued to private individuals, while it is not necessary to submit data about the name and address of the private individual), as well as invoices issued to taxable persons about intra-Community tax-free supply of goods.

Given the general nature of our information letter, it does not constitute advice to base decisions on. Considering this, please contact our colleagues with any specific questions you may have regarding the contents of this information letter.

Budapest, 27th February 2020

Krisztina Gubicza

Certified Tax Expert, Managing Director