Reflecting the Hungarian tax administration’s nature as a pioneer in innovative tax administration measures, 2021 brings significant eVAT developments in Hungary.
As of January 2021, to better track business transactions and enhance VAT collection, Hungary introduced a widespread real-time invoice reporting obligation for Hungarian taxpayers. The new rules are controversial because they put an administrative burden on non-Hungarian web-shops performing B2C sales to Hungary by threatening them with a penalty starting from April 1, 2021. As another unique development in the region, the Hungarian tax administration will prepare draft VAT returns for Hungarian taxpayers starting from July 1, 2021.
On January 4, 2021, Hungary introduced a real-time invoice reporting obligation applicable to taxpayers holding a Hungarian VAT registration number and performing sales subject to Hungarian VAT. This obligation applies to both B2B and B2C sales.
Due to the COVID-19 situation, Hungary provided a grace period for businesses to comply with the real-time invoice reporting obligation, and sanctions for non-compliance will first be enforced as of April 1, 2021.
The law provides an important exemption to this rule. No real-time invoice reporting obligation is applicable for businesses that declare and pay VAT through the EU’s OSS system. This rule is relevant because on July 1, 2021, the EU Mini One-Stop-Shop regime will be extended to all types of B2C services as well as to intra-EU distance sales of goods and certain domestic supplies facilitated by electronic interfaces. As such, the Hungarian OSS exemption was designed to grant an exemption to non-Hungarian businesses – mostly web-shops – performing B2C sales to Hungary.
The only problem with this exemption is the timing. The Hungarian regime becomes applicable on January 1, 2021, but the OSS goes live only on July 1, 2021. As a result, non-Hungarian businesses that will apply the OSS as of July 1, 2021 may nevertheless fall under the Hungarian real-time invoice reporting obligations before this date.
Non-compliance with the real-time invoice reporting obligation may trigger a penalty of up to EUR 1,400 per unreported invoice. How and in what amount the tax authority will assess and enforce the penalties in practice is yet to be seen.
Based on the new rules, non-Hungarian web-shops may have to find a way to comply with the Hungarian real-time invoice reporting obligations until July 1, 2021, when they can enjoy the OSS exemption. A potential solution may be engaging a Hungarian service provider to comply with real-time invoice reporting obligations on the web-shops’ behalf in the interim (or even beyond the July 1, 2021 date, if the OSS is not applied).
As another important development is that, starting in the second half of 2021, the Hungarian tax administration will prepare businesses’ draft Hungarian VAT return and make this draft available to businesses on a designated online platform. The first VAT return to be drafted by the tax authority will be for the reporting period that begins on July 1, 2021.
Businesses will of course be free to amend the draft or to opt to not use it all. For many businesses, this development will represent a significant easing of their administrative obligations, and it is a true sign that the Hungarian tax administration is offering a more efficient service to Hungarian taxpayers.
By Gergely Riszter, Head of Tax, Baker McKenzie Budapest