The number of yearly tax inspections conducted by the Hungarian Tax Authority has been steadily increasing over the past few years. The most popular tax inspected continues to be VAT, since it is a major contributor to the national budget. If your company operation is compliant with regulations, you have nothing to worry about.
Tax inspections in Hungary
In Hungary, there are two types of tax inspections, or tax audits, conducted by the Tax Authority:
- regular tax audit (“adóellenőrzés”), where you have to submit all your relevant documents, and if the auditors find anything amiss, you have to pay a fine;
- compliance audit (“jogkövetési vizsgálat”), where the focus is on compliance, and if there is anything amiss, you have a chance to correct the mistake.
In Hungary, the overwhelming majority, over 90% of tax inspections fall into the “compliance” type. Still, the tax difference discovered every year is above HUF 200 billion (ca. EUR 520 million), while the penalties total around HUF 230 billion (ca. EUR 600 million).
At the same time, about 90% of the discrepancies discovered are related to VAT. Since standard VAT in Hungary is 27%, it is logical to look for inconsistencies there, since the collection of these originally missed sums can be the most lucrative.
More and stricter inspections recently
As it is apparent from the numbers in the latest Yearbooks of the Hungarian Tax Authority, the number of tax inspections have been steadily growing with around 6% each year after a significant, 22% drop in 2020 due to the pandemic. At the same, it has been reported that auditors seem less lenient recently. It seems they are more prone to:
- Apply penalties
- Start prosecution
- Apply “provisional protective measures”, meaning that the Tax Authority will block the relevant arrears and/or penalty on the bank account of the inspected business, sometimes even before the inspection is completed. This means that you do not get a warning, which can jeopardize the cashflow of the business.
Decreasing income from taxes
The reason for the increasing rigidity of audits might be due to the high inflation in Hungary. While prices keep increasing, the purchase power of salaries keeps decreasing, which compels people to spend less. This in turn results in a smaller influx of VAT into the treasury.
How to prepare for tax inspections?
The most important thing is to remain compliant with tax regulations throughout your Hungarian business operation. Make sure to pay your taxes in full and on time – act on the information you receive from your accountant. Moreover, keep your contracts with your clients and your providers up to date, and make sure every incoming and outgoing invoice is properly archived.
You can also improve your chances of a smooth tax inspection if you conduct due diligence on your partners before accepting or providing any services, and document your results. To check if your partner to be is a legitimate business, you can start with the online company registry, where every Hungarian company is registered. The next step can be checking last year’s summary online to see if their operation is realistic.
During tax inspections, the Tax Authority might give very short deadlines for you to submit your documents – think 5, or just 3 business days. If you keep everything in order, meeting those deadlines will not be a problem. That is especially true if you create a script describing what to do when you get an inspection: who can collect which documents, in which cases you need an external expert, what kind of questions to expect. Your accountant can help you with that.
Don’t worry about tax inspections too much
Even though it seems that tax inspections have been getting stricter recently, you do not have to worry about them too much if you follow the guidance of your Hungarian accountant and keep your company compliant with regulations.
- Pay your taxes in full and on time
- File and archive incoming and outgoing invoices
- Have valid contracts with your partners
- Conduct at least basic due diligence on your partners to be
- Create a script in preparation for an inspection
- Do your best to comply with the requests of the Tax Authority during the inspection
Helpers Finance offers accounting and bookkeeping services especially to small and medium-sized businesses in Hungary, focusing on working with foreign owners. If you work with us, even tax inspections will feel like a breeze, thanks to our continuous high-quality service. This way you can focus on what you do best: growing your business.
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