Refund of value added tax paid abroad

The Hungarian deadline for submitting an application for a refund of value added tax paid abroad during the calendar year 2019 is approaching. The process is quite complex and regulated, its most important rules are presented below.

Value added tax refund from an EU Member State

During the calendar year 2019, a significant number of Hungarian companies made purchases or used services in another European Union Member State. During these transactions the value added tax (hereinafter: “VAT”) of the given Member State was charged and passed on to the Hungarian company.

Only those taxable persons are entitled to refund the VAT paid in a EU Member State who on the one hand have the right to deduct VAT in Hungary (e.g. are not subject to a VAT exempt status) and on the other hand who would like to refund the VAT emerged concerning their business expenses. If these conditions are met together, they can refund any VAT that has been passed on to them – from another Member State’s point of view – as foreign taxable persons.

The application for refund is possible only for those companies, which have neither a place of seat, nor a permanent establishment in the given EU Member State, nor does it maintain a branch through which it derives income in that Member State. In the EU Member State where the company has its registered place of seat or permanent establishment, the company can exercise its right to deduct VAT in its regular VAT returns, in such cases the refund request discussed in this newsletter does not apply.

In all cases, the rules of the Member State concerned shall apply to the refund of VAT paid abroad. A good example of this is the VAT refund of fuel: while in Hungary it cannot be refunded in any form, in Germany the German VAT paid on fuel purchased for a car can be refunded, provided the appropriate certificates are available.

The applicant is entitled to submit the request for refund by 30 September of the year following the year in question, which deadline is mandatory time-limit. Thus, for the calendar year 2019, the deadline for submitting the application is 30 September 2020 (Wednesday), by which time the so-called ELEKÁFA form (if the applicant wishes to refund VAT from several EU Member States, then this form should be prepared for every Member State in question) should be submitted electronically (via the ‘Customer Portal’, in Hungarian: Ügyfélkapu) to the Hungarian Tax Authority (henceforth: “HTA”). The application must be accompanied by invoices certifying the performance of the economic activity and their annexes (e.g.: transport and customs documents, proof of performance, etc.).

Thus, the Hungarian taxpayer does not have to apply to the foreign tax authority for a VAT refund, as the application is forwarded by the HTA to the tax authority of the Member State concerned. However, the exact requirements and rules of the given refund need to be examined on a case-by-case basis for each Member State, which the HTA does not do for the taxable person. The Hungarian tax laws only regulate the role of HTA as a “postman” and the Hungarian stage of the VAT refund procedure.

Value added tax refund from a country with a reciprocity agreement

In addition to the 27 EU Member States outside Hungary, it is possible to refund VAT from Switzerland, Liechtenstein, Norway, and since 2019, also from Serbia and Turkey. Such refund requests are based on the so-called reciprocity agreements with these countries.

In the case of Switzerland, Liechtenstein, Norway and Serbia, the rules of applying for refund are the same as for EU Member States, except for the method and deadline of submission.

However, there are two restrictions on VAT refunds concerning Turkey:

• on the one hand, it is not applicable for the whole calendar year 2019, the agreement between the two countries was concluded in May 2019, so the application can only be submitted for invoices with a settlement date after 21 May 2019 (in 2020, this time restriction will not apply);
• on the other hand, it is not possible to refund the VAT on all products and services, only the Turkish VAT of fuel, tolls procured exclusively for the transport of goods or passenger transport services, products and services procured for the operation and maintenance of a motor vehicle for this purpose, moreover products and services purchased at the exhibition or fair are refundable.

A very important difference from the VAT refund rules for EU Member States is that in the case of Switzerland, Liechtenstein, Norway, Serbia and Turkey, the application must be submitted not to the HTA, but to the tax authority of the country concerned. Consequently, the deadline for submitting the application is also set by that tax authority, which is not necessarily 30 September.

The same procedure applies, of course, to companies established in Switzerland, Liechtenstein, Norway, Serbia and Turkey, when these companies received an invoice with Hungarian VAT from Hungarian taxpayers during their purchases. In such cases, it is also necessary to submit an application for VAT refund directly to the HTA, the deadline for which is also 30 September.

It may be therefore worthwhile to contact with the parent or sister companies in the above-mentioned countries before the deadline so that any incurred and paid VAT will not be lost for 2019.

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Refunding VAT paid abroad can be a complicated process with many pitfalls, so in some cases it is recommended to involve an expert in the procedure. VGD Hungary’s experienced tax advisors are also at your disposal during the refund of VAT paid abroad.