What does registering for VAT abroad involve?
If the business of a Hungarian taxable person requires registering for VAT abroad, the cost and administrative burden associated with registering for VAT and filing VAT returns are factors that must be taken into account. In addition to reporting obligations involving VAT returns, the EC Sales and Purchase List and potentially Intrastat reporting (which is a report for statistical purposes on the movement of goods within the EU),an obligation to report invoices in real time (similar to the Online Invoice System in Hungary) and an obligation to pay and declare other taxes or public dues could also apply, depending on the regulations of the country in question.
When are you required to register for VAT abroad?
There are cases where Hungarian taxable persons may be required to register for VAT abroad. We recommend hiring a tax advisor to examine these issues.
1. A Hungarian taxable person imports goods from a third country to another Member State of the EU, from where the goods are resold to Hungarian customers
In our example, a company registered in Hungary imports goods from China to the European Union, and the goods are released for free circulation in the Netherlands. Following the import, the goods are delivered to Hungary to the final consumers who are Hungarian taxable persons.
Let’s suppose that the place of import is the Netherlands, as the goods are released for free circulation in the Netherlands. The transaction gives rise to Dutch VAT liability for the importer, and such import VAT may be reclaimed from the Dutch tax authority if all legal requirements are met.
The supply of goods from the Netherlands to Hungary following the import qualifies as an intra-Community supply of goods, which must be invoiced by the company to the Hungarian customer using a Dutch EU VAT number without charging VAT.
This means that the company is required to register for VAT in the Netherlands and must declare the supply of goods in a Dutch VAT return and in a Dutch EC Sales and Purchase List. The taxable person is the Hungarian final consumer who accounts for VAT in Hungary under the reverse charge mechanism in its Hungarian VAT return as an intra-Community acquisition of goods.
Requesting a Dutch VAT number can be avoided by selecting a different customs procedure, and appointing a Dutch customs broker can significantly mitigate financial and administrative burdens. We definitely recommend seeking help from a tax advisor when looking into these options.
2. Foreign VAT liability of supplies of goods involving installation or assembly
In the second case, a Hungarian company supplies a piece of machinery or equipment to a foreign customer with installation or assembly included, and such work is carried out in another Member State of the European Union (EU 1).
As a general rule, the company is not required to request a VAT number in EU 1 as the place of supply is not Hungary, but instead the Member State of the EU where such installation or assembly is carried out, i.e. EU 1. If the customer has an EU VAT number in EU 1, the Hungarian company will issue an invoice to the customer under the reverse charge mechanism without charging VAT (naturally, this is just the general rule that can be overridden by multiple factors).
However, our clients often fail to consider the issue that if parts required for the assembly of the machinery or equipment are acquired from another EU Member State (EU 2) and are delivered directly to EU 1, then that transaction must be analysed separately, and a VAT number must be requested in the destination country (i.e. EU 1 in this case) for intra-Community acquisitions of goods (of course, the obligation to register for VAT must be examined on a case-by-case basis, given that EU 1 could potentially set a threshold for VAT registration).
Read our detailed blog entry on the tax risks of installation or assembly.
3. Maintaining a stock abroad
Hungarian companies may also be required to register for VAT if they maintain a stock in another EU Member State (EU 1). Sales from stocks must be invoiced and VAT must be paid according to the rules of EU 1 in connection with domestic transactions carried out in EU 1, and this is where intra-Community supplies of goods and export sales from such stocks must be declared in accordance with the local regulations.
The obligation to register for VAT with regard to sales from stock can be avoided by applying the simplification for call-off stock.
4. Foreign VAT liability of events and conferences organises abroad
If a Hungarian company organises a cultural, arts, scientific, educational, entertainment, sports or other event (including, in particular, exhibitions, fairs, presentations and conferences) in another EU Member State (EU 1),then the company may be required to register for VAT in EU 1 and issue invoices and pay VAT in accordance with the local regulations.
Generally, this includes cases where
- a ticket is required for attending the event, and attendees include not only taxable persons registered for VAT in EU 1, but also, for instance, taxable persons from Hungary, another EU Member State or a third country, or
- non-taxable persons (such as individuals) are also in attendance; in such cases, requiring tickets to attend the event is no longer a pre-requisite and, for example, private events could also fall into this category.
When looking at who the attendees are, the factor to examine is who the company is in a contractual relationship with. So, for instance, if a company registers for and pays for participation in the event for its employees, then the company qualifies as the client, i.e. the attendee.
5. Paying VAT on real estate services abroad
In the case of real estate transactions, the obligation to register for and pay VAT commonly arises in the EU Member State where the property is located, and often the existence of a permanent establishment for VAT and/or corporate income tax purposes must be examined.
In our example, a Hungarian company provides real estate services (such as real estate brokerage or appraisal) in another EU Member State (EU 1). Many EU Member States have implemented the reverse charge mechanism for these transactions, but since this is not mandatory, not all Member States have opted to apply this mechanism.
Therefore, there may be cases where a company appraises a property located in EU 1 and provides this service to another taxable person registered in EU 1 and, as a result, the company will need to register for VAT in EU 1 and will incur a tax liability there.
Another scenario might be that the customer does not possess a VAT number in EU 1; in such cases, it is almost certain that the Hungarian company will need to register for VAT and pay VAT in EU 1.
When can you avoid registering for VAT abroad?
There are a number of options under EU law and Hungarian law which allow taxable persons to be exempted from the obligation to register for VAT abroad if certain conditions are fulfilled. These include the triangulation simplification for chain transactions or, in the case of sales from stock maintained in another country, the use of call-off stock. In terms of exemption from import VAT, the so-called customs procedure 42 could be an option. In addition, there are EU Member States where, under varying conditions, an "international reverse charge mechanism" can be applied to domestic supplies of goods to taxable persons where the supplier is not otherwise registered in the given Member State (Hungary, for example, has not adopted this specific type of reverse charge mechanism).
As a result, there are many cases where registering for VAT abroad can be avoided, but also cases where registration is mandatory, and there might be situations in which opting for foreign VAT liability could be the more favourable option after taking into account the additional cost and administrative burden.
