Many companies are not aware that products can be imported from a third country without paying VAT at the time of import. Beyond the fact that Hungary’s 27% import VAT is uniquely high within the European Union, it can also result in significant savings if a business understands how goods can be imported without paying import VAT upfront. This is why it is far from irrelevant which customs procedure structure a company chooses, where it carries out customs clearance, and which simplifications it may lawfully use.
Why is the treatment of import VAT a key issue?
One of the most important advantages of the European Union’s customs union is that importers established in the EU are not required to initiate customs procedures exclusively in their own Member State. In practice, this means that businesses may consider in which Member State it is most worthwhile for them to carry out customs clearance.
It is in the interest of Member States — or at least rational thinking suggests so — to create a customs law environment that enables the most advantageous customs clearance possible for businesses, in order to attract as many EU economic operators as possible to carry out customs clearance there. In a way, this is a competitive situation: which country can attract more importers.
What options are available for imports without paying import VAT upfront?
Having examined the Hungarian customs law environment and the available options for release for free circulation without paying import VAT upfront, the following solutions may be considered:
1. VAT-exempt product import in another EU Member State
In this case, the importer initiates the release for free circulation not in Hungary, but in another EU Member State, with the commitment that the goods will be transported onward to a Member State other than the one where customs clearance takes place, and will be used or placed on the market there.
2. Hungarian customs procedure based on a self-assessment authorization for import VAT
The Hungarian importer initiates customs clearance in Hungary and, if it holds a specific authorization, does not pay import VAT at the time of the customs procedure but settles it through self-assessment.
3. Using an indirect customs representative
In practice, this is the most common structure for businesses that wish to carry out their customs processes in Hungary but do not themselves hold an authorization for self-assessed import VAT. In such cases, the indirect customs representative acts on the basis of its own entitlements.
A három fenti lehetőség közül azok a vállalatok, akik Magyarországon szeretnék a vámfolyamataikat rendezni, a gyakorlatban a vámjogi képviselők önadózói engedélyének az igénybevétele a legelterjettebb.
It is worth reviewing what each option actually entails:
1. VAT-exempt product import: how does it work?
Applying the Code and EU VAT rules, an importer may initiate the release for free circulation of an import shipment destined for Hungary in another EU Member State without paying import VAT, provided that it undertakes to transport the goods to a Member State other than the one carrying out customs clearance and to place them on the market or use them there. This process is called VAT-exempt product import.
In practice, this means that a Hungarian business does not clear its shipment arriving from China through customs in Hungary, but generally in one of the EU Member State ports before the goods arrive in the country.
In such a case, after customs clearance, the goods continue on to their Hungarian destination already as EU goods released for free circulation.
Risks of VAT-exempt product import
At first glance, this solution may seem favorable; however, experience shows that it has several downsides that many do not take into account when choosing it.
These may include EKAER obligations, as well as the fact that transport to the other Member State must be separately evidenced to the customs authority. In practice, a financial or tax representative may also be required for customs clearance under the domestic rules of the Member State where customs clearance is performed.
A further risk is that any post-clearance customs audit will also be conducted in the Member State where customs clearance took place, which in this case is not the Member State where the economic operator has its seat.
2. Authorization entitling the holder to self-assess import VAT
A less risky solution than the above is where the Hungarian business initiates customs clearance in Hungary before the Hungarian customs administration, while holding an authorization entitling it to self-assess import VAT.
The legislation currently in force makes it possible for an economic operator holding an authorization for the self-assessment treatment of import VAT not to pay import VAT at the time of customs clearance, but instead to account for it through self-assessment. Naturally, this solution only applies to import VAT that is deductible under the VAT Act.
There are two legal grounds on which a business may be entitled to an import VAT self-assessment authorization:
One is where the company’s revenue from VAT-exempt supplies of goods and services is taken as a basis, subject to threshold values. These thresholds are so high that a broad range of businesses cannot obtain the authorization on this basis, so this is a less feasible alternative.
The other legal ground is if the business holds an AEO customs simplifications authorization. This status also requires qualification subject to conditions that are not easy to meet, and only a fraction of businesses hold this special authorization.
The above shows that self-assessment authorization is a useful and practical option, but in practice it is difficult to obtain in one’s own right.
3. Using an indirect customs representative with AEO status and an import VAT self-assessment authorization
If an importer cannot obtain an import VAT self-assessment authorization under the above legal grounds, there is still no need to give up hope of conducting imports without paying import VAT upfront, because a broader solution is offered by the special form of representation created by the Customs Code: indirect customs representation.
In a significant number of cases, import VAT has been handled through self-assessment in such a way that the importer uses customs agency services in the form of indirect customs representation, in which procedure the customs representative handles the import VAT on the basis of its own self-assessment authorization.
In my view, this structure is a well-functioning system and a customs law environment that has made Hungary suitable, due to its geographical location, to fulfill a Central European logistics distribution role and, not least, to encourage businesses operating in Hungary to initiate customs clearance procedures in Hungary, thereby generating significant revenues for the country.
Customs representatives providing customs services almost without exception hold AEO status and therefore also have an import VAT self-assessment authorization. The indirect customs representative may apply all authorizations at its disposal in the interest of its client, including its self-assessment authorization.
How does indirect representation work?
During the procedure, the customs representative performs the service in its own name but in the interest of its client; the risks associated with the customs procedure are borne almost entirely by the customs service provider. It is the primary customs debtor, obliged in its own name to pay the customs debt, while at the same time being able to apply all authorizations available to it that result in customs and tax simplifications in serving its client.
By providing a declaration on the right to deduct VAT, the importer effectively assigns its right arising from the VAT Act to the customs service provider, which, exercising this right, initiates the customs procedure on the basis of its self-assessment authorization. Although the customs authority establishes the amount of import VAT in the customs decision, it also indicates that this is for information purposes only. Any inspection initiated after customs clearance is likely to affect the customs representative acting in its own name, precisely due to this special form of representation.
Conditions became stricter from March 1, 2025
After March 1, 2025, stricter conditions came into force for the above structure, the reason for their introduction, according to the legislator, being the prevention of abuse.
A new condition is that the indirect customs representative may exercise the right of deduction on behalf of the importer only if the customs representative has reliable taxpayer status.
Further objective conditions arise on the importer’s side: the importer must be a monthly VAT filer and may not qualify as a risky taxpayer under the Act on the Rules of Taxation.
In the case of businesses that meet the above conditions but do not qualify as reliable taxpayers, under the new rules indirect customs representatives must carry out a partner screening. Based on the result of the partner screening, if no tax risk arises, the customs representative may initiate customs clearance and exercise the right of deduction on behalf of the importer. The customs representative informs the tax authority of the result of the partner screening.
What does practice show since the introduction of the new rules?
Based on experience since the legislative change, customs representatives and importers have learned the new rules, but there are still open questions, especially in cases where some kind of error occurs in the procedure.
So far, authority inspections relating to partner screening have taken place only in minimal numbers, so no authority experience is yet known, but a significant increase in the number of inspections can be expected.
At the same time, the further spread of self-assessed treatment of import VAT is necessary, partly because the competition-distorting effect of the exceptionally high 27% VAT rate at EU level must be reduced, and partly because it is also a national economic objective to increase the number of customs clearances in Hungary.
Do you import from a third country and want to reduce the burden of financing import VAT?
With expert support, it is possible to map out which customs procedure and VAT treatment structure may offer the safest and most efficient solution for your business.
