The draft legislation published by the Ministry of Finance amends the rules adopted as part of the 2023 autumn tax package with some technical details, allowing small Hungarian and EU businesses to apply the VAT exemption rules in a Member State other than their country of establishment. The introduction of the new rules effective from 2025 arises from an EU obligation, to ensure a level playing field by making the “cross-border” application of the VAT exemption possible. It also fits in well with the trend towards harmonisation and administrative simplification in the field of value added tax.
The cornerstone of the legislation is the concept of “Cross-border threshold”, which is the sum of the total sales carried out by a taxable person in all Member States of the Community under the exemption scheme, calculated net of tax. A taxable person may opt for exemption in another Member State only if it does not exceed the EU level EUR 100 000 cross-border threshold in either the preceding or the current year. However, it is important to note that if a domestic company wishes to perform sales in another EU Member State under the exemption, it must also pay particular attention to the domestic exemption threshold of that Member State (there are significant differences between Member States in the small business VAT exemption thresholds, with the Hungarian threshold of HUF 12 million being equivalent to around EUR 30,000, the Portuguese threshold being EUR 12,500 in 2021 and the Italian threshold being EUR 65,000).
If a Hungarian taxpayer wishes to benefit from the extended small business VAT exemption, the first step is to make a declaration to the Hungarian tax authority, specifying the Member State or Member States in which the VAT exemption is to be applied (similarly, a taxpayer not established but wishing to use the exemption in Hungary, makes a declaration to the tax authority of its place of establishment). After the application has been processed, the tax authority will create a unique identification number for the taxpayer, including the suffix “EX”.
Taxpayers will then have to provide data on their EU VAT exempt transactions for each calendar quarter, broken down by Member State, through an interface set up by the tax authority for this purpose. Readers familiar with the “one-stop shop” system introduced for electronic services and distance selling will be familiar with this solution. If the threshold(s) are exceeded, the tax administration will invalidate the unique identification number.
If a taxpayer exceeds the cross-border threshold of €100,000 in a given calendar year, it cannot opt for the extended EU VAT exemption rules until the end of the calendar year following the calendar year in which the threshold is exceeded.
