VAT deduction rules in Hungary
Írta: Tímea Kocsis
8 Sep, 2020

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.

General rules

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.

Special rules

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.

További bejegyzések

Tax changes in Hungary from 2022

Tax changes in Hungary from 2022

Tax changes in Hungary from 2022 As of 1st January 2022, there are some tax changes that apply to employee and employer. The amount of the minimum wage and the guaranteed minimum wage will be raised from 1 January 2022. The gross...

Taxation of sales of goods – VAT

Taxation of sales of goods – VAT

There are different rules in the VAT Act for the provision of services and separately for the supply of goods. If you do business in Hungary, you should be aware of this. What are product sales? Product sales are when we acquire a tangible product, good, semi-finished...

Personal income tax in Hungary

Personal income tax in Hungary

Do I need to make a personal income tax return and when? If you are resident in Hungary and you had income in Hungary during the year, then yes, you have to submit a tax return. The submission deadline: 20th May of next year. What kind of incomes are taxable in...

Tax changes in Hungary from 2021

Tax changes in Hungary from 2021

As of 1 January, 2021, there are only a few tax changes that apply to employees, surprisingly compared to previous years. From 1 January 2021, the gross minimum wage was HUF 161,000 and the gross guaranteed minimum wage was HUF 210,600. According to decision of the...

The formation and the use of accrued loss

The formation and the use of accrued loss

What is an accrued loss? Losses incurred in previous years are called accrued loss. It is important to note that profit before taxes and accrued loss are generally not equal. How is the accrued loss incurred? According to the Accounting Act (Act LXXXI of 1996 on...

Dividend advance payment rules

Dividend advance payment rules

Is your business well-run and profitable? Do you want to get dividends already during the year, not just the next year following the business year? If so, there is a solution to it. It is also possible to pay a dividend in advance during the year. The Accounting Act...