Your Hungarian company will most likely be a VAT subject, which means you will have to add VAT, or Value Added Tax to your sales. You will also be paying VAT on your purchases, but you will be able to reclaim VAT later.
VAT in Hungary
When you are making purchases on Hungary, the sales tax you have to pay is usually already included in the price indicated. This tax is the Value Added Tax, or VAT for short (in Hungarian, it is called “áfa” for “Általános Forgalmi Adó”). Standard VAT is 27% in Hungary, but it may be lower for specific items. You can see an overview about VAT rates in Hungary here.
Sellers that expect B2B customers usually indicate their net prices as well, meaning the prices without the VAT. This is because business customers can usually reclaim VAT, so the price that actually matters to them is the net price.
Are you a VAT subject?
Most Hungarian companies are subject to VAT. This means that when you make a sale, you add VAT to the price of your products, and you will have to forward the VAT content of the price to the Tax Authority. You (or rather, your accountant) will also be required to submit VAT reports regularly.
Becoming a VAT subject is usually not optional. Your business can avoid becoming a VAT subject only if it meets certain conditions, the most important of which is that the yearly revenue must remain under HUF 12 million (ca. EUR 30,000), which is quite low, and better applies to freelancers.
You get to reclaim VAT on your purchases
At the same time, the biggest advantage of being a VAT subject is that your company can reclaim the VAT content of your business purchases. This means that when your company makes a purchase, you should consider the net price indicated, instead of the regular, full price containing VAT.
Please note: not all products are eligible for VAT deduction. You can find a list of excluded products here. When in doubt, make sure to consult your accountant.
You can reclaim VAT when you submit your VAT report. VAT reports are submitted monthly, quarterly, or yearly, depending on various factors, including the expected yearly revenue or when the business was set up. Most new companies report VAT monthly.
When the VAT report is submitted, the VAT content of the invoices issued is set against the VAT content of your company expenses. The VAT content of the company expenses is then deducted from the VAT content of the invoices issued, so you will have to pay that much less to the Tax Authority.
If the VAT content of your company expenses exceeds the VAT content of the invoices issued, you can reclaim the difference. The reclaimed sum can either be transferred back to your company account, or be set aside on your tax balance to cover future taxes.
You can request a transfer only if the reclaimed VAT is above a certain threshold. Otherwise, the amount will remain on your tax balance. The thresholds are as follows:
- For subjects reporting VAT monthly: HUF 1 million (ca. EUR 2,500)
- For subjects reporting VAT quarterly: HUF 250,000 (ca. EUR 600)
- For subjects reporting VAT yearly: HUF 50,000 (ca. EUR 120)
Your accountant will take care of the VAT reports for you
Every Hungarian company needs an accountant, and creating VAT reports for your company is well among the duties of your Hungarian accountant. While Helpers Hungary specializes is company setup, our partner company Helpers Finance focuses on providing accountancy, bookkeeping, and payroll services to small and medium sized companies in Hungary.
Let Helpers be your one-stop-shop when setting up your new business in Hungary.
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