Vat exempt intracommunity delivery

Brexit: does creating a Hungarian company help with EU customs?

Great Britain now third country

The United Kingdom withdrew from the European Union (EU) on 1 February 2020 and left the EU Customs Union on 1 January 2021. Therefor EU traders, businesses and citizens will experience significant changes due to Brexit.

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The UK’s departure from the EU also means that it will be considered a “third country”, ie a non-EU country, from 1 January 2021. An exception to this is Northern Ireland,. In that case, EU customs, VAT and statistical legislation continue to apply. As a result, in the case of Great Britain (England, Scotland, Wales), the rules of exit and entry have changed, and products coming from or going to Great Britain have also become subject to customs duties.

For customs administration, an EORI number must be requested from the National Tax and Customs Administration (NAV). This can be done in person or through an agent. Products arriving in Hungary from outside the EU – in this case from Great Britain – and departing from Hungary to Great Britain must be reported in a customs declaration, as this is a condition for import and export from January 2021. NAV carries out the customs procedure on the basis of the submitted goods declaration.

For individuals, it is good to know that if they order goods from Britain or import goods from there on their journey, from January 2021 it will be considered as an import from outside the EU. It is therefore advisable to find out from the customer information available on the NAV website before ordering or travelling. If someone does not want to handle their own customs affairs, they can entrust a customs representative instead.

See how the Brexit new rules will apply on the gov.uk site.

What can I do to mitigate the impact of Brexit?

Establishing a Hungarian company is an exceptional tool to mitigate the disadvantages of Brexit.

A company established in Hungary will allow UK small firms to maintain their business in the EU region and continue to benefit from accessing the single market. The immediate benefit of forming a company in Hungary is that it will allow trading within the EU without customs and tariffs, invoice business customers without charging VAT and administer their trade and service activity by the EU legislation.

Read more on this topic here.

Employment

Social insurance lower limit from 1 July 2020

The new social insurance rules introduce a new minimum social security contribution under the name “Lower Limit for Social Insurance Contributions”, the legislation comes into effect from 1 July 2020.

 

In the case of employment, under the new rules, the contribution base is at least 30 per cent of the minimum wage per month (lower contribution limit).

The rule of the lower limit for the payment of contributions must, therefore, be examined in the case of employment in which the salary does not reach 30% of the minimum wage on a monthly basis (in the case of a broken month, the one-thirtieth of it shall be taken into the calculation per day).

The new rule does not differentiate between full-time and part-time employment. That is, even in the case of part-time work, 30% of the total amount of the minimum wage must be taken into account.

Whether an employee’s job requires a secondary education or a vocational qualification is still decisive in calculating the lower limit for the payment of contributions. If the answer is no then the minimum wage shall be used, but if yes then the higher amount guaranteed minimum wage is applicable.

The lower limit for the payment of contributions calculated on the basis of 30% of the minimum wage (currently HUF 161,000) is HUF 48,300 from 1 July 2020 in the case of employment.

The lower limit for the payment of contributions calculated on the basis of 30% of the guaranteed minimum wage (currently HUF 210,600) is HUF 63,180 from 1 July 2020 in the case of employment.

Accordingly, if the salary of an employee doesn’t reach the above amount, then their social security contribution shall be calculated and paid after the lower limit.

MINIMUM WAGEGUARANTEED MINIMUM WAGE
Employer taxes30%30%
Gross salary48 30063 180
– social insurance tax15,50%7 4879 793
– vocational training contribution1,50%725948
– total tax8 21110 741
Full employment cost56 51173 921
Tax deductions from employee
Gross salary48 30063 180
– personal income tax15,00%7 2459 477
– social insurance18,50%8 93611 688
– total tax33,50%16 18121 165
Net salary32 12042 015
Total tax per month24 39231 906
Invoice

Changes in invoicing and vat reporting from 1 July 2020

Changes in invoicing rules

From 1 July 2020, the invoices shall be issued within 8 days from the date of the completion, a reduction from the current 15 days.

The requirement for the mandatory data content of the invoices also changes. Accordingly, at least the first 8 digits of the tax number of the buyer as domestic taxable person must be shown on the invoice, regardless of whether the document contains any VAT passed on or in what amount.

According to the legal wording, the obligatory data content of the invoice is the first eight digits of the “tax number or, in the case of a group VAT group, the group identification number of the customer acquiring the service, under which the supply of goods or services was made to a domestically registered taxable person, provided that the seller or service provider is established in the country for economic purposes and, in the absence of establishment for economic purposes, is domiciled or habitually resident ‘.

In this regard, it should be emphasized that in the case of a transaction subject to domestic reverse taxation, the 11 digits of the tax number must be entered on the invoice, the indication of the first 8 digits is not sufficient.

The buyer’s tax number shall be indicated for the first time on the invoices issued on transactions that are completed (the completion date is) after 30 June 2020, regardless of the amount of the value added tax.

Temporarily, invoices issued for a transaction that completed after 30 June 2020, which yet does not include the buyer’s tax number, may still be acceptable for VAT deduction if it was issued before 1 July 2020 and the tax is less than HUF 100,000.

Incoming invoices

It is important to check before accepting an incoming invoice that your partner has also included the customer’s tax number on the invoice. We encourage you to send information to all our partners, even by forwarding this email.

Reporting invoices to the tax office

Again from 1 July 2020, data on each and every domestic transaction and invoice issued to domestically registered taxable persons shall be sent to NAV (tax office) electronically.

The change compared to the previous rule is that so far only invoices with a VAT amount of HUF 100,000 or more had to be submitted to the tax authority. This means that the threshold has been removed and subsequently from 1 July the tax office will see literally all invoices between domestic businesses.

The reporting is also applicable on transactions between domestically registered taxable person that bear reverse charge vat or exemption from vat.

If someone still uses manual invoices then they shall report all their sales invoices to domestic vat registered entities:

in one day if the vat amount of the invoice reaches or exceeds HUF 500,000
in four days in other cases.

From 2021, the provision of data will be extended to such an extent that only exceptions are mentioned in the legislation:

All invoices must be reported, except:

invoices issued for the supply of goods or services which are effected in another Member State of the Community and which, in respect of the supply of goods or services, satisfy the taxable person’s tax liability under the special rules for taxable persons providing services which may be supplied at a distance.

Subsequently, all invoices will be subject to reporting, including:

invoices issued to individuals (the data will not include the buyer’s personal data)
invoices issued for the supply of goods and services in the Community; and
invoices for export sales.

According to the plan from 2021, the tax office (NAV) will prepare a draft VAT return for taxpayers based on the data provided. Details of this have not yet been published by the tax authority.

We strongly recommend businesses still using manual invoices to switch to using a billing software or online billing. These can be linked to the tax office’s database directly, and so the reports would go instantly and automatically.

VAT report: change in the domestic recapitulative statements (“M-sheets”)

Legislation introduced on 1 January 2013 and amended on 1 January 2015, required taxable persons to complete, as part of their VAT returns, a domestic recapitulative statement on all transactions in which the VAT content reaches or exceeds HUF 1,000,000.
The rules on domestic recapitulative statements changed in 2017 when the reporting threshold was brought down to HUF 100,000.

Currently, in line with the invoice reporting rules, the value limit of HUF 100,000 will also be abolished in the case of domestic recapitulative statements from 1 July 2020. This means all incoming invoices must be included in the recapitulative statement, on the basis of which the taxable person will deduct VAT. VAT-exempt invoices do not have to be entered on “sheet M”.

The recapitulative statement must continue to show the full amount of the tax base and the value added tax on the invoice received, regardless of whether the recipient of the invoice exercises their right to deduct only partially.

source: bspl.hu

Destination: Hungary

Key benefits of starting business in Hungary

You’re thinking about opening a new company, and Hungary is the place where you want to build your dreams. Here are the benefits that opening a Hungarian company may offer to you.

Hungary has a stable economic and political system

Real real GDP growth has been expected to pick up to 3.7% in 2017, from 1.9% in 2016, and to average 2.3% in 2018-22. The domestic economy continues to be the main driver of economic growth. Growth in fixed investment again surpassed 20% (17Q3: +21.6% year-on-year; 17Q2: +26.1% yoy), as EU funds flow into the economy and lax monetary policy pushed business confidence to all-time highs. Investment in construction and machinery, and equipment investment also grew at a sharp pace in the third quarter. Growth in private consumption decelerated marginally, but remained buoyant nonetheless (17Q3: +4.8% yoy; 17Q2: +4.7% yoy). Private consumption continues to be supported by declining unemployment, higher wages in the public sector, benign inflation and ease of access to credit. Government consumption growth rebounded from a 2.7% contraction in 17Q2 to a 2.5% increase in 17Q3, the first expansion since 17Q2 2016. Overall, domestic demand expanded 4.4% in the third quarter, significantly above the 2.6% growth in the previous quarter.

Hungary is located in Central-Europe, in close proximity to major European core markets.

Budapest is the capital of Hungary, having a population of around 2 million. Public services are good, crime rating is low, and there’s a low threat from terrorism. Hungary is well connected with Europe, either by means of road, rail, or air transport. Telecommunication services are good, mobile and landline phones are easily available, internet is cheap and reliable.

Hungary is a member of the EU, NATO and the OECD and the World Trade Organisation

The very obvious advantage is that by opening a Hungarian company your business will get EU VAT number too. This allows companies to freely trade within the EU. New companies may apply for EU VAT number right at the time of formation, and it is activated in a few days. With valid EU VAT number business-to-business trading is VAT exempt.

A Hungarian KFT Company provides a legitimate tax-efficient solution

KFT is a limited liability company, where the liability of the members is limited to providing the initial share capital. From their on the members are not liable for he liabilities of the company. The minimum share capital of KFT is HUF 3,000,000 (cca EUR 10,000).

Corporate tax rate is flat 9%.

There is no withholding tax and payment of dividends to any resident or non-resident person are tax free

There is no dividend tax or withholding tax paid either to companies or private individuals.

15% personal income tax plus 14% health care contribution is payable on dividend payments to resident individuals. For non-resident individuals the personal income tax on dividend is payable by the guidelines of double taxation agreements.

Highly educated, multi-lingual local workforce

Hungarian wages and salaries are quite low compared to Western-Europe’s. Minimum wage in 2017 is HUF 1275,000 pm (EUR 425) and 138,000 pm (EUR 460) in 2018 gross; for higher educated workforce it is HUF 161,000 pm (EUR 537) in 2017 and 180,500 pm (EUR 602) in 2018 gross.

Hungarian workforce is typically highly educated. Skilled workers and university degree employees are easily available on the jobmarket. Youngers usually speak English, or even further languages, while the not-so-young employees usually don’t speak  or speak badly foreign languages.

Egry József - Fények a Balatonon

Doing Business in Hungary 2019

The objective of Doing Business in Hungary 2019 is to provide guidance on the business environment in Hungary for those decision-makers who are interested in engaging in business activity in Hungary.
The publication focuses on the general overview, like currency, climate, cost of living, bankink, and safety and security guidance, followed by broad outlook on the current economical situation. You will learn from our booklet what business organisations are allowed in the Hungarian company law, what are the criteria to estblish a particular company, what are the minimum share capital requirements, and what is the procedure to form a company.
This publication also deals with the taxation system of Hungary, and gives detailed guidance on corporate tax, tax deductibles and tax incentives in Hungary, value added tax system, personal income tax. A brief guidence will also be found about small business tax, small taxpayers’ itemized lump sum tax, employment taxation, local business tax, innovation contribution, company car tax, withholding tax, and finally tax penalties.

Hungary is an attractive investment target for foreign companies with its qualified human resources, language skills and outstanding location in Central Europe.

Our Doing Business in Hungary booklet has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained herein without obtaining specific professional advice. Please contact us to discuss these matters in the context of your particular circumstances. Neither we, nor our partners, employees or agents accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

SPECIAL TRIBUTE

 

This year  we pay special tribute in our publication to the greatest Hungarian painters Munkácsy Mihály, Székely Bertalan, Szinyei Merse Pál, Csontváry Kosztka Tivadar and Egry József.

Our previous booklets: