International Tax, Accounting and Law Firm in Hungary
Pursuant to a new amendment of Hungarian VAT legislation, all invoices issued by a Hungarian VAT tax subject to another domestic taxable person for a domestic transaction (excluding intra-Community supplies), regardless of the VAT content of the invoice must be reported to the to the Hungarian Tax Authority NAV from 1st July 2020.
As an additional obligation, all incoming Hungarian supplier invoices for goods or services as well as for advance payments must be reported to the tax authority if a Hungarian taxable person wishes to deduct the VAT contained in those invoices in a given tax assessment period.
The above reporting obligation enables the tax authority to match the VAT content of each invoice issued by a company with the detailed VAT returns of its customers. The system works both ways, it is designed to collect information on all invoices between suppliers and customers so that these data can be cross-checked by NAV, the Hungarian Tax Authority.
The invoice reporting obligation has been extended to all invoices issued under Hungarian invoicing rules starting from 1st January 2021. Thus, the obligation to provide information will cover invoices issued to private individuals as well as invoices relating to intra-Community supplies and exports. Exceptions may be made only for invoices issued for the supply of goods or services by distance selling where the place of delivery is another EU Member State., e.g. in the case of online shops in the one-stop-shop VAT scheme.
The new VAT reporting rules apply not only to Hungarian entities, but also to foreign companies that occasionally issue invoices using their Hungarian VAT number. Most firms generate their invoices from their ERP or separate invoicing software. So far as these invoices are concerned, the law explicitly states that reporting must take place electronically and simultaneously with the issuance of the invoice.
Another option is to issue invoices on special pre-numerated invoice blocks and report them to the tax authority on a designated internet platform. This latter solution is generally only used by small businesses. According to recent research, a surprising 60 percent of all businesses in Hungary still print on pre-numerated, paper-based invoice blocks. The tax authority is expecting a rise in the use of invoicing software due to the increased administrative burden of companies still invoicing on paper.
The Tax Authority NAV has granted a penalty exemption to those taxpayers who fail to fully comply with their invoice reporting obligations between 1st July 2020 and 30 September 2020. The grace period applies only to the non-reporting of individual invoices with a VAT content under HUF 100,000. The transition period has been offered as an opportunity for businesses and IT developers to make sure that their software can fulfill the reporting obligation by 30 September 2020 the latest.
Invoice reporting does not generally cause a problem to most international businesses operating in Hungary because most of them use standardized invoicing software that is regularly updated by the software company. The new reporting obligation may however create some challenges to foreign companies invoicing with Hungarian VAT as well to domestic entities using foreign or individual software solutions.
In such cases, individual software development that complies with the complex data requirements of the tax authority may prove to be quite wearisome. Purchasing a ready-made plugin that will transfer the data from the foreign invoicing software to the Hungarian tax authority is often a more convenient solution. In the latter case also, a fair amount of software development is still necessary by the foreign company, including the fulfillment of the Hungarian specifications for invoice data, the creation of the API surface and the XML data communication. So far as SAP is concerned, ready made SAP-plugins are available for compliant invoice reporting. Businesses that do not issue a large number of invoices are sometimes better served if they work with a simpler data transfer solution to an already existing commercial Hungarian invoicing software application.
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