When you are buying goods or services in Hungary, their price will most probably contain VAT. However, this VAT may be deducted from the VAT your own company is paying to the Tax Authority.
What is VAT deduction?
If you add VAT to your invoices, you are paying that VAT collected from your clients to the Tax Authority. However, you can reduce your payable VAT with the VAT content of anything you buy. As most purchases can be included in this, laws regulate the items you CANNOT use for VAT deduction. You may look up Section 124 of the VAT Act of 2007, or read on.
Conditions for VAT deduction
- You as the buyer are entitled to deduct VAT due to your activities (if you are adding VAT to your invoices, you are most probably eligible for VAT deduction, but e.g. companies where the main activity is property rental or providing loans are NOT allowed to deduct VAT)
- Properly issued invoice that states the name, address, and tax number of BOTH the seller and the buyer
- There is no restriction on VAT deduction for the goods or services included in the given invoice (forbidden items include parking, food and drinks, see below)
- In case you are making a purchase with the intention of resale, even the VAT content of forbidden items may be deducted (see Section 125 of the VAT Act)
Just make sure that all relevant invoices are sent to your accountant, who will calculate how much VAT you must pay based on your invoices issued and the VAT deduction available to you based on your purchases.
Forbidden items in VAT deduction
You are NOT allowed to deduct VAT when buying the following items.
- gas, petrol, or any fuel used in passenger vehicles
- passenger vehicle
- motorcycle with an engine capacity of more than 125cc
- yachts or other water vehicles used for sport or entertainment
- residential property, including costs of goods and services related to building, reconstruction or renovation
- food, drink, catering, entertainment
- parking and other road use (including motorway passes)
- 30% of the costs of landline or mobile telephone use
- 50% of the costs related to services for renting, using, and maintaining passenger vehicles
Always consult your accountant
If you are operating a company in Hungary, and you are adding VAT to your invoices, you are most probably eligible for VAT deduction. Before making any major purchase, or purchasing a “new” type of service or good for your company (one your company has not purchased before), make sure to consult your accountant to learn whether the VAT content of the invoice will be deductible from the VAT your company pays to the Tax Authority.
Disclaimer: The data in this article reflect the state of affairs upon publication. To get up-to-date information, always consult your accountant.