International taxation – when to apply for a Hungarian tax number
If a Hungarian company carries out transactions for which the place of supply is abroad and are not subject to international reverse charge, that company may be required to apply for a tax number abroad as well, subject to local tax law.
Accordingly, the same entity may have tax numbers in more than one country at the same time, but the rules for the place of supply will always determine the tax number that will be relevant to the tax liability for the given transaction.
VAT registration in Hungary – who is required to register?
For multinational companies, having presence in Hungary without a permanent establishment is a well-established and commonly used tax planning option that provides a transparent and easily manageable solution for business owners. However, if the foreign company has employees in Hungary or rents offices there, creating a permanent establishment is mandatory.
Business presence without a permanent establishment
Numerous foreign companies are enjoying the benefits of business presence without a permanent establishment in Hungary as well, as Hungarian legislation provides ample opportunities for conducting activities without a permanent establishment.
Any activity not prohibited by law is permitted, from the domestic supply of goods to the domestic supply of services. In Hungary, these companies mainly sell products manufactured abroad or provide services to their Hungarian customers, for example in the following sectors: computer equipment, electronic components, construction or packaging, wholesale of other foodstuffs, chemicals and textiles, online retail, or event organisation.
When is a foreign company required to apply for a Hungarian tax number?
If a foreign company's activities in Hungary are subject to VAT, then it must register for VAT with the Hungarian Tax Authority. If a foreign company is liable to pay VAT on its domestic supplies of goods and services in Hungary, then it can deduct the input VAT charged on its purchases in connection with this activity, but is exempt from Hungarian corporate income tax, payroll taxes and any other tax burden on the profits of companies with a permanent establishment in Hungary.
However, it will still be required to comply with other "minor" tax obligations, such as the payment of customs duties or the environmental product charge, as well as EKÁER registration. The success of the Hungarian operation is guaranteed by the Hungarian service providers and subcontractors responsible for the transactions and a financial or tax representative responsible for the accuracy of fulfilling tax obligations.
Financial representation – who is it mandatory for?
Companies established outside the EU must designate a financial representative to fulfil their tax obligations in Hungary. The financial representative guarantees to the tax authority that the tax obligations will be fulfilled. Companies within the EU may also appoint a financial representative, but they are not required to do so.
The financial representative may also be financially liable for the company's tax obligations, his involvement being the guarantee to the state and the tax authority that the company will fulfil its tax obligations.
Who can become a financial representative?
According to Hungarian rules, any limited liability company or company limited by shares with a registered capital of at least HUF 150 million or an equivalent amount of bank guarantee and no unpaid tax debt according to the records of the Hungarian Tax Authority can be a financial representative. The financial representative fulfils the domestic tax obligations of the foreign company on its behalf and exercises the rights of the taxpayer, which means that, during the period of financial representation, the foreign company may not act before the tax authority on its own behalf or through another representative.
The foreign company and the financial representative are jointly and severally liable for the tax liability of the foreign company. A taxpayer may appoint only one financial representative at any given time, but the termination of such representation does not affect the tax liability of the foreign company.
Tax representation in Hungary – a useful option for EU companies
Companies established outside the EU must designate a financial representative to fulfil their tax obligations in Hungary. The financial representative guarantees to the tax authority that the tax obligations will be fulfilled. Companies within the EU may also appoint a financial representative, but they are not required to do so. Many multinational enterprises take advantage of this option, realising that, by doing so, they not only free themselves from considerable administrative burdens, but can also benefit in the long term from the experience of local advisors in efficiently managing VAT audits and in the areas of customs, the Electronic Public Road Trade Control System (EKÁER) and the environmental product charge.
In the case of tax representation, unlike financial representation, the represented company may act on its own behalf or through another representative in connection with its tax matters during the period of representation, without joint and several liability on the representative's part.
Foreign tax representation of Hungarian companies in the EU
In recent years, it has become a trend for us to play an increasingly important role in the expansion of Hungarian companies abroad through our extensive international background, coordinating and overseeing their cross-border activities under one roof.
The experience gained in managing VAT registrations in different EU Member States, in meeting the obligations related to periodic filings and in developing the most efficient tax structure tailored to each company is a significant asset.
This solution can provide a competitive advantage, particularly for Hungarian companies that are having goods cleared through customs abroad or conduct sales abroad, as it represents a cost-effective alternative to setting up a business in a foreign country.
