Domestic taxpayers still have the opportunity this year to reclaim VAT that has been legally charged abroad, either in other EU member states or in certain recognized third countries with which there is reciprocity or an international agreement allowing it.
While the process is not complicated, it can be time-consuming, leading many businesses to be deterred by the administrative burden. VAT can be reclaimed if Hungarian businesses have no permanent establishment in the refund country and if their activities entitle them to VAT deduction. The reclaim process can be initiated for various expenses, such as accommodation costs during foreign business trips, short-term car rentals, or fuel and road use charges related to goods transportation.
During the procedure, Hungarian taxpayers can submit their applications electronically using forms provided by the Hungarian Tax Authority (NAV). NAV conducts a formal review and forwards the application to the relevant authority in the concerned country, which decides within four months. If approved, the refunded amount is transferred to the specified bank account. Reclaim processes in non-EU countries are more difficult due to varying rules and forms used by each country.
It is important to note that VAT reclaim is only lawful if the invoice content complies with the rules of the refund country. There are no penalties if the application is rejected, but the taxpayer should act with care. The steps and conditions of the process vary by country, so it is advisable to involve external experts.
Key Points:
1. Opportunity to reclaim VAT:
- Domestic taxpayers can reclaim VAT charged abroad in other EU member states and certain third countries.
- The conditions for VAT reclaim differ by country.
2. Conditions for reclaim:
- The business must not have a permanent establishment in the refund country.
- In Hungary, only domestic VAT taxpayers engaged in economic activities who are entitled to VAT deduction can submit their applications.
3. Process for submitting claims:
- Hungarian taxpayers can submit their VAT reclaim requests from other EU member states electronically through the form “24ELEKAFA” via NAV.
- NAV conducts a formal review and checks the applicant’s taxpayer status, forwarding the application to the relevant foreign authority within 15 days.
- The foreign authority decides on the claim’s approval or rejection within four months.
4. Specifics of VAT reclaim from third countries:
- In non-EU countries (e.g., the United Kingdom, Norway, Switzerland, Turkey, Serbia, and Liechtenstein), the reclaim process is more complex due to differing rules and forms.
- In the UK, VAT reclaims can primarily be submitted in paper format, though electronic submission is possible after prior registration.
5. Application period and thresholds:
- The deadline for submitting claims is definitive; for example, claims for 2023 must be submitted by September 30, 2024.
- The reclaim period in EU member states varies, but it must be no less than three months and no longer than one year.
- The minimum VAT amount for annual reclaims is €50 or its equivalent in the national currency of the refund country.
- If the reclaim period is shorter than one calendar year but covers at least three months, the minimum VAT amount is €400 or its equivalent in the national currency.
6. Special case:
- For the UK, the annual reclaim period runs from July 1 to June 30 of the following year, with claims to be submitted by December 31 after the end of the reclaim period.
- Reclaims can also be made for periods shorter than one year but must cover a minimum of three months. The VAT threshold for annual reclaims is £16, while for shorter periods, it is £130.
7. Reclaimable transactions:
- Only lawfully charged VAT can be reclaimed.
- Typical reclaimable transactions include foreign accommodation, short-term car rentals, fuel, and road use charges.
- If a business is only partially entitled to VAT deduction based on its activities, the deduction ratio must be included in the application. If the deduction ratio changes afterward, this adjustment must be reflected in the VAT refund application submitted for the calendar year following the affected period or through a separate correction declaration (“24ELEKAFA_KIIGNYIL”) to the tax authority.
8. Administrative burden:
- There is no tax risk involved with reclaiming foreign VAT. If the application is incorrect or the applicant is not entitled to a refund, the competent tax authority will reject the application.
- While VAT reclaim may pose an administrative burden, there are no penalties for rejected applications.
- Involving external experts is recommended to ease the process.
Do you have questions or need help applying the necessary legislation? Feel free to contact us!
