If you are a foreign entity doing business in Hungary – depending on the case – you may need to registered for VAT, establish a Branch or set up a subsidiary or do neither of the above. In some cases you will be able to choose which form is best for you, in other cases you have no choice but to establish a local entity or Branch and apply for VAT registration. For example, if you are a non-EU entity employing private individuals in Hungary, you will be required to set up a Branch or a Subsidiary and apply for a business licenses. However, if you import goods into Hungary from outside the EU with the sole purpose to ship them to other EU countries, you may be able to avoid VAT registration and will not be required to set up a Branch or a subsidiary. You should aim to avoid unnecessary registrations in Hungary by carefully planning your business operations and structuring them in a way that best fit your business model. This includes taking into account benefits of the double tax treaties, special tax regimes (such as VAT and customs warehousing, indirect customs representation),local simplification rules (such as call-off stock simplification) and business enhancement schemes (such as subsidised activities or donations). Good understanding of local tax regime is vital in making business structuring decisions.
What if I decide/need to set up a local entity /branch? How does that compare to VAT registration? What are the costs?
To set up a local company or a local branch of a foreign company you will most likely incur a one time legal cost for the legal services (setting up a company, drafting local business agreements under the local law) and periodic costs for accounting and tax compliance and - if you employ private individuals – for payroll services. In some cases you will also be required to appoint an independent auditor.
On the other hand, the VAT registration is a less complex form of doing business in Hungary - you will not need to manage another legal entity, only a VAT registration. You will incur one time cost for registering your business for VAT with the Hungarian Tax Authority and periodic cost for preparing your VAT returns. If you are a non-EU entity you will be required to appoint local fiscal representative to maintain your VAT registration.
What are the tax consequences of having a local entity /branch?
If you set up a local entity or a branch you will be required to pay Corporate Income Tax (CIT),Local Business Tax (LBT) on your local profits, Value Added Tax (VAT) on the supplies of goods or services performed in Hungary. If you also employ private individuals in Hungary you may also need to pay/withhold Personal Income Tax (PIT),Social Contribution and some other taxes. In some cases you may be required to pay Environmental Product Fee (EPF) , file Intrastat, European Sales and Purchase Listing, itemized VAT report, register for Electronic Road Transportation Control System (also known as EKAER).
What are the tax consequences of having a VAT registration in Hungary?
If you do not have neither VAT fixed establishment (FE) not CIT and LBT permanent establishment (PE) in Hungary, you will not be required to pay CIT, LBT, PIT and social contribution – this will reduce your tax burden in Hungary. In most of the cases you will be only required to prepare and submit VAT returns and pay VAT. In some cases you may be required to pay Environmental Product Fee (EPF) , file Intrastat, European Sales and Purchase Listing, itemized VAT report, register for Electronic Road Transportation Control System (also known as EKAER).
Do I need to register for VAT in Hungary?
Companies importing goods into Hungary or supplying goods from Hungary or to Hungary may have an obligation to register for VAT in Hungary. Typically you might need a VAT registration in Hungary, for example, in the following cases:
- You buy and sell goods in Hungary;
- You import goods into Hungary from outside EU or bring in goods from another EU country;
- You supply goods from a warehouse in Hungary;
- You bring in your own goods to Hungary from another EU country or remove your own goods from Hungary to another EU country (some exceptions apply);
- You deliver goods on a turn-key basis (supply goods with installation or assembly) in certain circumstances;
- You receive entrance fee for conference, exhibition or training in Hungary;
- You supply goods to final consumers (B2C supplies) in Hungary over EUR 35 000 threshold (distance selling).
If you failed to register for VAT in the past but wish to remedy it now, it is possible to register with a retrospective effect date and submit your VAT returns retrospectively.
Fiscal representative or tax representative (tax agent)?
If you are a non-EU company you will need to appoint fiscal representative in Hungary. Fiscal representative has joint and several liabilities over your tax obligations in Hungary, therefore it is an industry practice to require bank guarantee or bank deposit from you to secure the fiscal representative from potential damages. Fiscal representative is responsible to ensure that you have complied with all tax obligations in Hungary, including invoicing requirements, record keeping, EKAER obligations, tax filings and payments, enquiries from the tax authorities and tax inspections.
If you are an EU company you will not need fiscal representation and can appoint us your tax representative instead (no bank guarantee).
Do I need EKAER registration?
Typically you will need EKAER (Electronic Road Transportation Control System) registration if the following transactions you make are associated with road transport by qualified road vehicles:
- you acquire or bring in goods to Hungary from the EU countries,
- you supply or remove goods from Hungary to EU countries,
- the first taxable supply of goods to non-final customers in Hungary.
Failure to comply with EKAER reporting regulations may result in penalty of up to 40 percent of the transported goods and authorities have the power to cease goods if the transport is unreported. You will need VAT registration to register for EKAER. This means you cannot skip VAT registration and opt only for EKAER registration.
Environmental Product Fee (also known as EPF or Green Tax) registration
Once you have VAT registration you may have an additional requirement to register for EPF and submit EPF returns in Hungary. Typically EPF registration is required if you supply locally goods you bring into Hungary (more generally: the first domestic supply of goods in Hungary). It is possible to avoid EPF registration if EPF obligations are taken over by your local customer in Hungary (takeover agreement is required).
Do I have fixed establishment (FE) in Hungary?
You will have fixed establishment for VAT purposes in Hungary if you have an establishment, other than the business establishment, from which the activities of your organization are carried out and which has the permanent presence of both the human and technical resources necessary for making or receiving the supplies of services in question. In practice this means presence of 1) assets or technical resources, 2) people 3) for a longer period of time 4) in a fixed place. If you have fixed establishment in Hungary the place of supply of certain services may be altered. To establish whether you have fixed establishment a thorough review of your business processes and commercial agreements may be needed.
While in most cases circumstances that lead to permanent establishment (PE) for Corporate Income Tax (CIT) and Local Business Tax (LBT) purposes are the same as for FE for VAT purposes, a separate PE analysis may be needed which is based on Double Tax Treaties, BEPS and domestic law. If you have a PE in Hungary, you may be required to pay CIT and/or LBT on the income attributed to your PE in Hungary.
