We approached the matter from the incoming side, i.e. from the perspective of the collection of money. Now we will discuss what you have to pay attention to from a VAT perspective if the project in question is successful and the process starts on the outgoing side also, i.e. when the new company supply goods and/ or services.
How is the transaction performed?
Whether your company supplies goods or services, from a VAT perspective the first and most important question is deciding where the place of supply of the given transaction will be. This will determine which country’s VAT regulations you have to apply. If your company is (primarily) active in Hungary, this does not automatically mean that the VAT on the goods and services supplied is payable in Hungary.
In the case of the supply of goods, the place of supply will primarily be determined by the supply structure, the transport process and whether the goods are supplied to another company subject to VAT or to a non-VATable person (e.g. an individual),i.e. whether we are talking about a B2B or a B2C supply of goods.
In the case of the supply of services, in addition to the person the service is supplied to (a taxable or a non-taxable person),the nature of the service will also matter as different place of supply rules apply to the different types of services. We must note that in many cases, the place of supply rules of the VAT act do not follow everyday logic and must, by all means, be considered carefully according to the circumstances of the given transaction.
Is a foreign tax number necessary?
If the place of supply of the transaction for VAT purposes is abroad, your company may easily need VAT registration abroad (also).
Regarding registration, there are a number of important things that you must be aware of.
For example, companies supplying goods to individuals in one or more member states of the European Union must take the rules of distance supplies into account. According to the rules of distance supplies, up to a certain value limit (EUR 35 000 in the case of Hungary) it depends on the taxpayer’s choice where VAT is payable. This choice is especially important as the rate of VAT may be different in various EU member states. It is not difficult to see that our competitiveness depends a lot on whether 27 percent or 18 percent VAT is payable on a certain supply.
In the case of the supply of services it is also very important to be aware of where the place of supply of our services is. The fact that the place of supply of a certain supply of goods is in another EU member state does not in itself automatically mean that your company will have to register in that member state. Before registration, you have to consider, for instance, the reverse taxation rules applicable in the given country. If, for example, your company supplies services to a company in another member state, VAT may perhaps not be chargeable by your company according to the rules of the given EU member state but the ordering party. These rules were created specifically for the purpose to facilitate the movement of services within the European Union by not requiring VAT registration in the given member state in these cases. This may be important from the perspective of both costs and administrative obligations.
In the case of the suppliers of services we also have to mention the so-called Mini One-Stop Shop (MOSS) scheme. If your company supplies telecommunication, broadcasting or electronic services to non-VATable persons (e.g. individuals) throughout Europe or in a few EU member states, you may avoid the extra administration of local VAT registration if you do not have an establishment in the given member state. If you already have a VAT registration in Hungary, you may fulfil all VAT obligations of your company in respect of all other EU member states using the MOSS scheme through the Hungarian web portal set up for this purpose.
The services mentioned are performed in the member state of the recipient of the service. Therefore, your company would have to apply for VAT registration in each EU member state, which represents a substantial administrative burden. The use of the MOSS scheme is, however, only an option, not an obligation.
Who is my customer? B2B or B2C?
As you could see from the above, it is very important who your company’s customer is, i.e. whether you supply your goods or services to VATable or non-VATable persons.
If your customers are VATable persons and the goods supplied are transported to another EU member state, your company will have to invoice the supply of goods without VAT. However, for this purpose, you will have to be able to certify that the company’s customer is in fact a VATable person and that the goods supplied are in fact transported from Hungary.
If your customers are non-taxable persons of another EU member state, you will first have to examine the rules of distance supplies as the application of these rules may have a huge impact on your company’s competitiveness (primarily due to the different VAT rates). Before inspecting these rules, you will first have to clarify whether you are in fact supplying non-VATable persons for the rules of distance supplies may be applied without further restrictions in the case of private customers (B2C transactions).
It is also critical in the case of services whether your customer is a VATable or non-VATable person. This may determine the place of supply and whether reverse taxation is applicable and, in certain cases, also whether the MOSS scheme can be used.
The above clearly shows that the success of a kick-starter project may not only depend on how good the idea is and whether sufficient funding can be raised from community financing.
It is very important that you prepare in advance for the tax consequences of the project, even as early as in the phase of developing your idea.
To assess opportunities and potential obligations it is essential to understand the VAT rules of Hungary and other countries potentially concerned. Without a prior knowledge of rules you may already suffer a competitive disadvantage at the very start of your activity merely because you are unaware of your opportunities and do not use the options offered by legal regulations to simplify your operation and make it more efficient. You should already have an understanding of these opportunities at the time of developing your supply structure or planning the customer base you want to achieve.