Fiscal representation: a special form of tax representation
Tax representation can correspond to the legal representation, where those authorized to represent the company in writing can act in the tax procedure, or it can be based on a specific or permanent power of attorney.
Fiscal representation is a specialized form of the permanent power of attorney based representation.
What does the fiscal representative do?
The fiscal representative, as a special actor in tax administration procedures, acts as the permanent agent of his client in fulfilling all tax-related obligations.
The essence of fiscal representation lies in the representative assuming joint and several liability for the fulfilment of his client's tax obligations in Hungary while acting on behalf of and for the benefit of the client before the tax authority.
Appointing a fiscal representative is a legal requirement for businesses established outside the EU but conducting taxable transactions in Hungary. It is also an option for businesses engaged in such activities but headquartered in another EU member state. The latter can be easily monitored and contacted by the Hungarian tax authority —if necessary, with the involvement of foreign tax authorities. From this perspective, the "mandatory" fiscal representation requirement for businesses established in third countries is a practical risk-minimization measure.
Who can be a fiscal representative?
Under Hungarian regulations, a fiscal representative can be a private limited company (kft., rt.) whose registered capital reaches HUF 150 million or holds a bank guarantee of an equivalent amount and has no registered tax debt with the tax authority. The fiscal representative fulfils the Hungarian tax obligations of the foreign business on its behalf and exercises the rights entitled to the taxpayer. Consequently, while the fiscal representation is in effect, the foreign business cannot act personally or through another representative before the tax authority.
Tasks of the fiscal representative
In fulfilling the Hungarian tax obligations of the foreign business (including electronical ways) and exercising the rights to which it is entitled, the fiscal representative acts fully on behalf of its client. The close relationship between the two parties is exemplified by, and partially a consequence of, the fact that while the fiscal representation is in effect, the foreign business cannot act personally or through another representative before the tax authority.
The fiscal representative:
- fulfils the task of representation,
- participates in the Hungarian tax registration procedure of the foreign business,
- opens a domestic payment account in connection with the foreign entity's Hungarian tax affairs, as the tax authority transfers taxes owed to the foreign business exclusively to this account,
- and reports the represented entity's data to the tax authority's Directorate of Large Taxpayers within 15 days of accepting the representation. After verifying the authenticity of the reported data, but no later than within two weeks, the tax authority issues the tax number for the foreign business and registers the fiscal representative.
The joint and several liability of the fiscal representative
The fiscal representative is jointly and severally liable for the Hungarian tax obligations of all foreign businesses it represents at any given time, including those foreign businesses that terminate the fiscal representation with them without appointing a new fiscal representative. For this reason, it is in the fundamental interest of the fiscal representative to ensure that, upon termination of their mandate, a new fiscal representative continues the work. Any tax breaches resulting from the failure to appoint a new fiscal representative will be the responsibility of the "former" fiscal representative.
Fiscal representation is one of the closest relationships of trust and responsibility that can exist between a client and their representative. Due to the joint and several liability, the fiscal representative must bear the consequences of a poor decision alongside their client. These consequences are unavoidable, even if the fiscal representative, being reliant on the client, was unaware of all the facts or circumstances impacting the client’s tax obligations.
