If you do business in Hungary, it is very important to know what costs are deductible and after which VAT is not deductible. If you have a business relationship not only with an EU country or a 3rd country, but also with a domestic, i.e. Hungarian, activity, then continue reading this document.
In general, apart from some exceptional activities (e.g. postal, insurance, credit placement services, transactions related to certain real estates), a large proportion of activities that can be carried out in Hungary entitle you to deduct the VAT. So, you are obliged to increase the value of your Hungarian activity with 27% and deduct 27% based on the cost accounts.
In Hungary, the general tax rate for VAT is 27%. However, there are exceptions when 18% and 5% may be more favorable, but these are listed item by item in the VAT Act.
The restriction of the right to deduct tax can be found in § 124 of the VAT Act, which states taxatively in which economic events the VAT cannot be deducted at all or only in part.
What we cannot find in this list, our right to deduct the tax can be exercised.
In general, the following conditions must be met so that a taxable person is able to claim a deduction:
- you must have an invoice with appropriate formal and content conditions (buyer’s and supplier’s name, address, tax number),
- the product or service should not fall under the prohibition of deductions on which the invoice is based (e.g.: parking, food and drink, VAT can never be deducted concerning entertainment, a total list of these can be found below)
- the enterprise must carry out an activity entitled to a VAT deduction (e.g.: if the activity of the enterprise is the provision of a loan or the leasing of residential real estate, a VAT deduction cannot be enforced in case of services and products used for this activity)
- if the product or service is acquired for the purpose of resale, even if it is subject to a deduction ban, we may still deduct VAT on the purchasing and charge VAT on the sale (exceptions to the prohibition of the right to deduct: VAT Act, 125.§).
- purchases made for resale must be proven.
Products and services subject to the deduction ban (§ 124 of the VAT Act):
– VAT on petrol and other fuels if used for the operation of a passenger car
– VAT on the purchase of a car
– VAT on the purchase of motorcycles with a cylinder capacity of more than 125 cm3
– VAT on the purchase of yachts and other means of water transport used for sports or leisure purposes
– VAT on the purchase of residential real estate and the materials and services related to its renovation and construction
– VAT on food, beverages, catering services and entertainment activities
– VAT on taxi services
– VAT on parking, road use (motorway sticker, motorway use) services
– 30% of the VAT on landline and mobile phone use
– 50% of the VAT charged on the services used for renting, operating and maintaining a car
Disclaimer: The data in this article reflect the state of affairs upon publication. To get up-to-date information, always consult your accountant.