At this stage, the bill is only a draft, we should nonetheless discuss it briefly as it gives us an insight into the direction of the changes.
Changes in VAT rates
The bill proposes VAT rate changes in a number of areas.
- Basic foods
Concerning basic foods, according to the proposal, the current 27 percent VAT rate on the supply of poultry (fresh, cooled and frozen) and eggs and the current 18 percent VAT rate on the sale of fresh milk (with the exception of breast milk, UHT and ESL milk) would both go down to 5 percent. Other milk products would remain subject to 18 percent VAT. The new VAT rates would first be applicable on the supplies performed after 1 January 2017 based on the proposal.
- Internet access service
According to the proposal, a preferential VAT rate may also apply to internet access services. The proposal defines internet access service referring to the relevant definition of an EU regulation. Based on this definition, internet access service means a publicly available electronic communications service that provides connectivity to the internet, and thereby connectivity between virtually all end points connected to the internet, irrespective of the network technology and the end point equipment used.In relation to the moving of internet access services under the preferential VAT rate we have to note that the relevant Community regulation, i.e. the VAT Directive (Directive 112/2006/EC) does not provide authorization for divergence from the general VAT rate (27 percent in Hungary) in the case of these services. Still, the proposal does not address the matter of a potential conflict with Community regulation.The proposal also contains detailed transitional rules regarding the introduction of the preferential VAT rate for internet access services. According to these, if the proposal is accepted, the 18 percent VAT rate would first be applicable in the case of services supplied in 2017. If the provider and the user of the service agreed on so-called periodical settlement (as defined in Section 58 of the VAT Act, which is typical of supplies of services of this kind),the preferential VAT rate would first be applicable for the settlement period starting in 2017 in respect of which the due date of payment and the date of issuing of the relevant invoice/receipt are both in 2017.
- Catering industry
The proposal plans to implement a VAT rate cut in two steps in restaurant catering on the supply of meals and non-alcoholic beverages prepared at the catering unit. These transactions would first be taxed at a VAT rate of 18 percent, from 1 January 2017 and then at a rate of 5 percent from 1 January 2018 according to the proposal.
Definition of new real estate
Having regard to the changes in the rules of construction, the proposal supplements the definition of new real estate. The addition refers, beside construction services requiring the building authority’s permit or acknowledgement, to activities requiring simplified announcement only reflecting the new category introduced to the relevant rules of construction. In the case of simplified announcement, no act of the authority is required for the use of the real estate. In these cases, the 2-year period determining whether the property qualifies as new real estate shall be calculated from the date of issuing of the authority certificate proving the completion of construction.
The addition relating to the definition of new real estate is included in the proposal at all relevant sections. As a result, the rules relating to supplies of real property on a serial basis, tax-exempt supplies of real estate and the rules relating to the cap on tax exemption are amended also.
The proposal extends the list of wastes the supply of which is subject to reverse taxation, i.e. in the case of which VAT is payable by the taxable person acquiring the goods. Chrome waste and scrap and vanadium waste and scrap are added to the relevant list (Annex 6/B of the VAT Act).
Pursuant to the detailed transitional rules, reverse taxation shall be applied to the supply of the wastes mentioned above if both the date of performance of the transaction and the date on which VAT becomes assessable (as defined in Sections 60 (1)-(3) of the VAT Act) are in 2017.
If advance payment is made in 2016 in relation to the supply of such wastes, the tax arising in 2016 in relation to the advance payment shall be payable by the seller based on the rules of straight-line taxation. Reverse taxation will apply, however, in respect of the remaining amount if the transaction itself is performed in 2017 and the tax liability becomes assessable in 2017 also.
Similarly to the supplementation of the definition of new real estate, a further change relating to reverse taxation is the supplementation of the definition of real estate related construction installation and other installation services subject to reverse taxation (point b) of Section 142 (1) of the VAT Act) to include simplified announcement also. Accordingly, reverse taxation will also apply to construction services requiring simplified announcement only (provided that other relevant conditions are fulfilled).
This last provision would take effect from the 31st day following the promulgation of the accepted amendment.
Compulsory data content of invoices
The proposal contains a modification concerning many in relation to the compulsory data content of invoices. According to the amendment, the tax number of the domestic table person buyer must be shown on the invoice if VAT in an amount of at least 100,000 forints is stated in the invoice. So far, this limit was 1 million forints so the change does, in fact, concern many and, as a result, the number of invoices in which the buyer’s tax number will have to be shown as a compulsory content element will increase substantially.
If the bill is accepted, this provision will enter into force on 1 January 2017.
According to the proposal, if an invoice containing VAT of less than 1 million forints is issued in 2016 but the date of supply shown is in 2017, absence of the buyer’s tax number from this invoice should not prevent the taxable person from exercising its tax deduction right.
Tax refund of foreign taxable persons
Based on the amendment, the rules of tax refunds of foreign taxable persons would also be applicable to taxable persons resident in Norway as the relevant bilateral international convention was ratified. The proposal provides that Norwegian resident taxable persons may reclaim VAT from the Hungarian Tax and Customs Authority first on their 2014 acquisitions of goods/services from Hungary. Reclaim requests relating to 2014 must be filed until 30 September 2016 at the latest. (Requests relating to subsequent years shall be filed until 30 September of the year following the given year.)
The provision relating to Norwegian resident taxable persons shall apply from the day following the promulgation of the accepted proposal giving reasonable time for the filing of reclaim requests relating to 2014.
- Since 1 January 2016, supplies of new residential real estate up to a certain area have been subject to the preferential 5% tax rate. In relation to this rule, the proposal specifies the definition of useful floor space. According to the new definition, useful floor space shall, from the day following promulgation of the accepted amendment, mean the floor space defined as such in the Government Decree on national town zoning and construction requirements in effect on 1 January 2016.
- The proposal extends the authorization granted to the minister responsible for tax policy regarding the definition of detailed requirements relating to programs with an invoicing function, covering also the definition of the rules of the supply of data on invoices issued using such programs to the tax authority. This amendment would also enter into force on the day following promulgation.
The above summary shows that the changes proposed by the draft will have a significant effect on the lives of both VAT-able persons and consumers. All changing rules raise questions of interpretation, we can therefore be certain that case will be no exception either. As the above rules have not yet been accepted, a more detailed interpretation would be too early. It is however already clear at this point that companies will have to pay very close attention in order to comply with the new rules.