Hungary – The OSS System
As of 1 July 2021, businesses engaged in distance selling (B2C) to Hungarian customers will be able to fulfil their VAT obligations in any Member State in a single return under the one-stop scheme.
Prior to 1 July 2021, businesses engaged in distance selling (B2C) to Hungarian customers above the EUR 35,000 threshold or on a voluntary basis could only fulfil their Hungarian VAT obligation if they applied for a Hungarian tax number and submitted a Hungarian VAT return.
However, as of 1 July 2021, they will be able to fulfil their VAT obligations in any Member State in a single return under the one-stop scheme.
Who would come
If a foreign company has so far sold below the threshold to Hungarian customers and therefore did not have a Hungarian registration, but under the new rules it gets above the EU wide €10 000 threshold or would simply choose the Hungarian VAT liability on a voluntary basis, may consider joining the OSS system in Hungary.
So far, this option has not seemed attractive due to the fact that the strict Hungarian invoicing rules (including the real-time reporting obligation requiring serious IT developments – RTIR Real-Time Invoice Reporting) applied equally to all Hungarian taxpayers according to the general rules. However, the tax authority confirmed that distance selling companies would be exempt from issuing invoices under Hungarian rules for all sales reported in the OSS system.
Based on this, those who would choose the Hungarian OSS registration must register within the framework of a procedure similar to the VAT registration. At this time, it is not yet clear whether the tax authority will systematize a VAT tax number or a technical tax number for this purpose, and only limited information is available on the return form.
The ones who would stay
Those who have so far declared the VAT payable in Hungary through their Hungarian registration can log in to the Hungarian OSS system by means of a simple procedure: with their existing e-government ID, they or their authorized consultant can apply for OSS registration electronically and, according to current information, will be able to file OSS returns under their existing tax number. If they may have other transactions, they will still have to do so in a standard Hungarian VAT return – such sales will, of course, continue to be subject to special Hungarian invoicing rules.
The ones who would go
Those who decide to cancel the Hungarian VAT registration because they want to fulfil the Hungarian VAT obligation in another Member State in the OSS system can do so, but they have to reckon with some special Hungarian tax consequences (see below).
There is not just VAT
If you have so far made distance sales to Hungarian customers through your Hungarian VAT registration, depending on the nature of product and the volume of sales, you had to reckon with other tax liabilities in addition to the VAT return:
- Environmental product fee– this must be declared and paid quarterly, based on the weight of certain products sold in Hungary (electronic items, batteries, cleaning and toiletries, artificial flowers) and their packaging, or settled with an annual flat fee under certain conditions;
- Food chain supervision fee– this is a fee payable to the food safety authority, amounting to 0.1% of the Hungarian annual sales revenue, for any product that is part of the food chain (including the distribution of seeds, flowers, food and beverages, food supplements, etc.);
- Retail tax– this is a new type of tax introduced in connection with COVID, to be paid by larger firms dealing with distance sales over HUF 500 million, i.e., about EUR 1,4 million, which is subject to a tax equivalent to 0,1% of Hungarian annual turnover;
- Excise duty– this could arise in the case of distance sales of alcoholic beverages and other excise products (e.g., lubricating oils), but there is currently no distance selling practice approved by the tax authority to deal with this.
In the light of experience, neither the companies concerned nor the tax authorities took the above obligations beyond VAT too seriously. Some paid the first two precisely, others did not deal with it at all, bearing the risk involved. However, with the introduction of the OSS system, the confusion in this area has further increased.
Should those who would go stay? Should those who are not here also come?
The retail tax referred to above is subject to all companies which supply their products domestically to customers. According to the tax authority
- this taxable person is not removed by the cancellation of the VAT registration,
- a person who has not yet had a VAT registration but carries out such an activity must register as a taxable person (this is not exempted from the fact that below the threshold he has no obligation to declare or pay retail tax).
The environmental product fee must be paid by remote-sellers if they are “registered in Hungary.” As the law does not specify its content, according to the current interpretation, even registration due to retail tax may generate a product fee liability.
If we take this interpretation seriously, it follows that any foreign company that makes B2C sales to Hungarian customers on a business-like basis
- is obliged to register in Hungary (both those who have been below the distance selling limit so far and those who would register elsewhere in the OSS system above the limit value or on a voluntary basis),
- is also obliged to pay an environmental product fee in Hungary.
This apparently absurd situation is not really compatible with the administrative reduction goal of the OSS system. Negotiations are currently underway with the Hungarian tax authority on this issue, and we hope to be able to report on concrete results soon.
The above information was kindly provided by ABT Hungária Tanácsadó Kft (Hungary). For more information, please contact Ákos Cseuz at: [email protected].