The Impact of the Mandatory Deposit Fee System on VAT
The DRS, or Deposit Return System, is the return system for products with a mandatory deposit fee introduced in Hungary from January 1, 2024. The most important details of the mandatory deposit return system, regulated by Government Decree 450/2023. (X. 4.),as well as the range of affected products and companies, were discussed in our previous blog post.
Due to the introduction of the DRS, the summer tax package also amended the VAT law, effective from January 1, 2024.
1. The main VAT and tax base changes according to the DRS system: In the VAT system, the deposit fee is not part of the tax base, meaning it does not increase the tax base of the sale, nor the tax payable.
2. The deposit fee must be listed separately on the invoice. (The DRS fee will appear on invoices issued from the manufacturer to the distributor and from the distributor to the consumer, thus going through the sales chain.) Although the deposit fee is not part of the tax base, the deposit fee for products not returned by the last day of the calendar year forms a tax base at distributors operating the mandatory deposit fee system.
3. However, it is important that the distribution of deposit fee products not subject to the DRS remains unchanged, i.e., the deposit fee (packaging) sales continue to form a VAT base, and VAT should be adjusted according to the rules for subsequent tax base reduction upon return.
5+1 Questions about the Mandatory Deposit Fee Products Return System (DRS)
1. What products are subject to the mandatory deposit fee?
The mandatory DRS fee applies to direct non-reusable or reusable consumption-ready or concentrate plastic, metal, and glass packaging with a capacity of 0.1-3 liters (excluding milk and milk-based beverage products).
2. Who are affected by the mandatory deposit return system? The DRS distinguishes between:
- The concession company (MOHU MOL Waste Management Ltd.),
- Distributors, and
3. How can manufacturers and distributors prepare for the DRS system?
The new system imposes tasks on both manufacturers and distributors, and it is important that they prepare in time. We advise businesses to examine with the help of experts whether:
- They qualify as a manufacturer or distributor?
- Do they need to register with MOHU?
- Does the mandatory product registration deadline of November 15 apply to them?
- Is it mandatory for them to operate a return machine?
- Is their invoicing system prepared for handling the deposit fee and redeeming vouchers?
4. What will be the mandatory deposit fee?
For non-reusable products, the return fee will be 50 forints, while for reusable products, the manufacturer determines the amount. The law prescribes special obligations for the manufacturer and distributor related to the operation of the deposit fee system, such as registering and auditing the participating products at MOHU. The deadline for this is November 15, 2023, for products marketed from January 1, 2024!
5. How do consumers get the deposit fee back?
Consumers (end-users) will be able to get back the deposit fee paid on top of the product prices if they return the products to the return points. There are several ways to return: direct transfer to a bank account, voucher, and there are plans to allow the deposit fee to be donated to charity.
5+1. Where can the deposit fee products be returned?
The law mandates the establishment of return machines in certain stores (food stores with a sales area larger than 400 square meters). In addition to machine returns, another option is the manual return of products at return points. The main rules of the DRS system and returns were summarized in our previous blog post.
Considering that Government Decree 450/2023. (X. 4.) was published in the Hungarian Gazette on October 4, 2023, we expect further clarifications regarding the detailed rules.