VAT Guide for Freelancers in Hungary

If you are a freelancer providing products and services to clients in Hungary, you must register and comply with Hungarian VAT laws. As Hungary is a part of the European Union’s single market economy, it follows many of the EU’s VAT policies, which can often override the local Hungarian legislation. For instance, the European simplification VAT regime replaced simplification measures for call-off-stock agreements set up by the Hungarian government. 

The Hungarian government charges a standard VAT rate of 27%, with additional reduced rates of 18% and 5% to be charged based on the type of products and services you sell. The Hungarian VAT is administered by the Ministry for National Economy and The National Tax and Customs Authority. 

Hungarian VAT rules can be confusing to keep up with, so we have prepared a structured guide with everything you need to know about the system. Let’s get started!

Hungary VAT Rates

So, what are the different VAT rates in Hungary? Freelancers need to apply the correct VAT rates based on the types of goods and services they provide:

  • The Standard Rate - The Standard VAT rate of 27% is applied on all goods and services that do not fall under the reduced rates or the zero-rate category.
  • The Reduced Rate of 18% - The reduced rate applies to commercial accommodation, musical and dance events entrance fees, particular food and dairy products, etc.
  • The Reduced Rate of 5% - The Hungarian government has declared a further reduced rate of 5% applicable to specific pharmaceutical products, audiobooks, printed books, newspapers, district heating services, internet access services, local dining services, fish for consumption, some animal-based products, supply of new residential property, etc.
  • Zero VAT Rate (0%) - A 0% VAT rate is applied on medical services, cultural, sporting, educational services, financial and insurance services, intra community goods and services, supply of buildings or parts, etc. However, these items are still eligible for returns, and you should keep a record of the sales of these services and create a report based on your returns.

When should you register for VAT?

There is no threshold for VAT registration in Hungary; however, you should meet one or more of the following criteria to be liable for registration:

  1. You are importing/exporting goods in and out of Hungary
  2. You are accepting goods and services from other EU countries
  3. You are organising conferences and events in Hungary
  4. You are conducting “supply and install” services

The threshold for expat freelancers who are distance selling to taxable clients in Hungary is €35,000 per year, so if your annual sales revenue exceeds this, you must register for VAT.  Additionally, if you are an expat freelancer, you can use non-resident VAT trading without forming a local company in Hungary. You can also back-date a registration. However, for foreign freelancers, note that all necessary documents should be in Hungarian. 

Related: Guide to registering and working as a freelancer in Hungary

How to register for VAT in Hungary

As a freelancer in Hungary, you must prepare the following documents for submission to apply for VAT registration:

  1. Articles of Association
  2. A certificate of incorporation (in Hungarian)
  3. An extract from your company’s national trade register (in Hungarian) (if you are a sole proprietor) 
  4. A statement implying the economic activities you conduct (in Hungarian)
  5. If you are a freelancer from outside the EU, you need to appoint a domicile fiscal representative to represent you in all tax and VAT-related purposes. In that case, you need a power of attorney for that representative.
  6. Information about your annual revenue, taxable financial transactions, and bank account (in Hungarian)
  7. If you are a foreign freelancer already registered for the VAT in another country, you need to submit a copy of that VAT certificate as well. 

You must then submit these documents to the local tax authorities. The registration should be complete within 30 days of commencement of economic activities. You will receive your VAT number in 1-2 days. Note that you have to record VAT related transactions and report VAT every quarter, from the effective date of registration (i.e. the day you applied).

Alternatively, you can also register for VAT in Hungary through the Mini One-Stop Shop. This system is optional but advantageous if you are a freelancer operating in multiple EU countries. Through Mini One-Stop Shop (MOSS), you can coordinate to pay all your VAT from different EU countries in a single system under the Union Scheme. Click here to learn more.

Lastly, you can hire an accountant (or agency) to handle your VAT returns and dealings with the Hungarian Tax Administration. Xolo provides services like Xolo Go and Xolo Leap, which help with precisely this and any other VAT concerns you may have.

Financial Obligations of VAT Registered Freelancers in Hungary

Registering for VAT is only the first part of the process. After the effective date of your registration, you need to:

  • Charge the correct VAT rate
  • Pay any VAT owed to Hungarian Tax and Customs Authority
  • File VAT returns
  • Maintain VAT records and a VAT account.

Moreover, you need to follow detailed guidelines specifying the process to record and process your transactions. Every transaction must follow:

  1. Hungarian invoice requirements
  2. Accurate reporting and translation of foreign currency
  3. Use of reverse charge mechanism
  4. Correction of errors from past returns
  5. Credit note and corrections

In order to be fully VAT compliant, you need to:

  • Keep track of all purchases, accounts, and transactions for at least eight years
  • Keep a running total of your VAT account
  • Ensure that your VAT invoices are kept in an electronic format, are authentic, correctly signed and that the disclosure details are outlined in the Hungarian VAT codes
  • Use only approved foreign currency exchange rates.

You can only charge VAT on products that you are selling or about to sell. If you have already sent out or received a product, you cannot charge or claim VAT on it.

Reporting VAT as a Freelancer in Hungary

Freelancers are usually required to file their VAT returns quarterly. However, if your annual turnover in the previous year or before exceeds HUF 1 million, you must file VAT monthly. 

If you submit a VAT return late, you may have to pay a fine of up to HUF 500,000 plus the late payment interest. Even if you file the return but fail to make the payment, you are charged a late payment interest fee.

How to Maintain Financial Records

Systems like VAT MOSS can be helpful to maintain financial records as they are stored in the MOSS portal. Generally speaking, you need to store your clear and complete financial documents for up to ten years in either physical or electronic format.

Here is a list of documents you should maintain:

  • Printed copies of the invoices you send out
  • Received invoices
  • Agreements on sell-billing
  • The self-billing vendors' names, addresses, and VAT numbers
  • Notes (debit/credit)
  • Records of imports and exports
  • Records of bank statements, check stubs, cash books, till rolls, and paying-in slips in addition to your VAT account

Xolo can help you stay 100% VAT compliant and never miss out on any steps! We automatically generate, send, and store all your invoices digitally, so you won’t have to worry about misplacing them over the next decade.

How Xolo Can Help?

The tax registration process can be tricky at times, but we hope this guide has helped clear your doubts! If you’re still confused about the different schemes and numbers, and paperwork, Xolo offers a range of solutions that handle all the hassle while you focus on your core competencies. 

With Xolo Go, you can easily freelance and invoice your clients, even without a registered company or LLC. 

  • Signing up takes only 10 minutes, and once you do, taxation, corporate compliance, and all the tricky VAT calculations are all automatically taken care of in the background!
  • We charge a flat rate of 5% from every withdrawal to your bank account. No surprise fees, no contracts, and no BS.
  • Xolo Leap requires Estonian e-Residency, but you can start your own EU company with us once you have it!
  • We offer different tiers of service depending on the solopreneur’s, or as we call them, Xolopreneur's, individual needs.
  • Once you get your business set up, you can run it from anywhere in the world! So whether you’re looking to gain access to the EU market or a digital nomad - this is the place for you! 

 

Simply put, we do the hefty work for you so that you can enjoy the freedom of freelancing. So connect with us immediately, and we’ll help you get your one-person business up and running in Hungary in no time!