The growth of companies and the expansion of their business structure always pose challenges for management and require a great deal of expertise. This is particularly true when expansion means that the company concerned must apply for a tax number outside Hungary, file tax returns and pay taxes abroad in accordance with local regulations.
In addition to the VAT return, the EC Sales List, and possibly Intrastat reporting obligations (statistical reporting on intra-EU product movements),there may be more tax-related tasks to be performed depending on the specific country's regulations. These include, for example, the obligation to report invoices in real time (similar to the tax authority’s Online Invoice Reporting System in Hungary) and other tax or duty payment and declaration obligations.
When is foreign VAT registration required?
If the following economic events are typical of the company's transactions, there is a high probability that the company will need to apply for a foreign tax number.
Some typical transactions that may require foreign VAT registration include:
- movement of own goods (products) between member states;
- maintaining customer inventories in another member state;
- maintaining warehouse stocks in another member state;
- local sales in another member state;
- a supply chain with two or more participants (chain transaction, triangular transaction);
- sales or supply chain involving a third country;
- refund of VAT paid in another member state;
- a Hungarian taxable person imports goods from a third country into another EU member state from where he resells the goods to Hungarian customers;
- foreign VAT payment on the supply of products involving assembly or installation;
- foreign VAT liability of foreign events and conferences;
- foreign VAT payment on services related to real property.
Would you pay tax abroad? Watch out for these pitfalls
In our experience, the different and specific tax rules of other countries pose challenges for Hungarian businesses when registering under VAT and filing tax returns abroad.
Let's take a look at what can be issues when paying taxes abroad:
•VAT registration abroad
VAT registration procedures and the documents and information required for registration vary from country to country.
•Preparing VAT returns abroad
In other countries, VAT filing deadlines may differ, with different filing frequencies, value limits and rules.
•Communication with the tax authority
Tax audits are usually a problem because they are carried out in the language of the foreign country.
Another difficulty for companies can be dealing with local service providers. As in many cases businesses contract with several local service providers, communication and clarification of service provider risk and liability can be time-consuming and costly.
There are situations where foreign VAT registration is not necessary, but it is important to bear in mind that in some cases registration is mandatory! In some situations, it is preferable to opt for VAT liability abroad, considering the additional costs and administrative burden.
Are you obliged to register for VAT abroad? Download our publication where you can find contact details of the European tax authorities, as well as the VAT specialities of each country.
VAT registration abroad: it often pays to outsource
Applying for a foreign tax number, preparing and filing local VAT returns and meeting tax obligations represent an increased administrative burden for inexperienced businesses.
Outsourcing VAT registration and administration can save a lot of time and costs, especially if the company is expanding to several foreign countries.
Outsourcing administration can save a lot of headache for a company expanding abroad, especially if it needs to apply for tax numbers and prepare tax returns in several countries. In this case, it is sufficient to contract with a single team of Hungarian experts and to maintain contact with a dedicated tax professional within the company. The Hungarian expert team will monitor the deadlines, prepare and file the tax returns.
