Fiscal Representation: For Whom and Why?

Navigating the business world is not always an easy task, especially when engaging in cross-border activities. In this complex environment, the fiscal representative plays a key role. But who needs a financial representative and what exactly is their role? We answer these questions below.

Who should mandate a fiscal representative in Hungary?

To mandate a fiscal representative is mandatory for companies established outside the European Union (e.g. China, United States of America, United Kingdom, Switzerland, etc.) that wish to perform business activity in Hungary, but do not have a fixed establishment in the country. More precisely, companies established outside the European Union, and which do not have a location in any member state of the European Union should mandate a fiscal representative in Hungary. According to the VAT Act, these companies must appoint a fiscal representative in order to be able to fulfill their tax obligations in Hungary. It is important that the fiscal representative should be reported to the Hungarian Tax Authority and the fiscal representative must be also indicated on the issued invoice.

This is especially important:

• For third country companies that sell products or services in Hungary.
• In the case of businesses that remotely provide electronic services to Hungarian individuals or companies.
• For companies within the European Union, this is not mandatory, but they can choose this option.

Why should a company outside the European Union mandate a fiscal representative?

Since the convention on legal assistance between member states is not applicable outside the European Union, companies established outside the EU are required to appoint a fiscal representative. The fiscal representative shares joint and several liability for the activities and tax obligations of the businesses they represent in Hungary.

The fiscal representative acts as the client's permanent representative when fulfilling all tax-related obligations. This means that as long as the fiscal representation service exists, only the fiscal representative can act on behalf of the foreign company. The foreign enterprise may not act either personally or through another representative.

Thus, the fiscal representation service is a relationship of trust and responsibility between the business and the service provider. The provider holds joint and several liability for the tax obligations of the represented business in Hungary and is also responsible for any potential consequences.

Requirements imposed on a fiscal representative

Starting from January 2025, only those companies will be allowed to provide fiscal representation services who:

• Operate as a limited liability company (LLC) or a joint-stock company (JSC);
• Have a share capital of HUF 150 million;
• Are listed in the tax authority's database as free of public debt.

What are the tasks of a fiscal representative?

• Participating in the Hungarian tax registration process
• Opening a bank account for the represented company (since the Hungarian Tax Authority transfers VAT refunds to foreign businesses exclusively to this account)
• Reporting the represented foreign company to the Hungarian Tax Authority's Key Taxpayers Directorate (in Hungarian: NAV Kiemelt Adózók Adóigazgatósága)
• Managing tax returns
• Maintaining communication with the authorities
• Providing advice on various aspects of taxation

VGD Hungary can assist you with the followings:

• Providing full financial representation services
• Acting as a permanent representative before the tax authority
• Preparing VAT returns
• Supporting compliance with special invoicing regulations in Hungary
• Performing VAT analysis and advising on international and domestic transactions

This newsletter provides general information and does not constitute advice.