Tax changes 2021

The domestic regulations applicable to distance selling and low-value import are going to be amended pursuant to the changes to the e-commerce VAT regulations of the European Union.

 

Currently each member state applies different thresholds to distance selling (intra-community product sales and shipping to consumers at a distance) for VAT registration in the buyer's country, for example, in case of foreigners selling to Hungary the threshold is EUR 35,000 currently.

 

The above rules are going to change on 1 July 2021 since a uniform EUR 10,000 per year threshold is being introduced across all EU member states. Sellers will be entitled to apply the VAT rate of their own state under the threshold (or may choose to adopt the VAT rate of the destination country). However, above the threshold, the VAT rate of the member state of the purchaser shall apply to the sale. A positive change in the rule is that registration in the destination country is not required for this. The distance selling company can declare the sales data of each foreign country in the VAT return of its home state.

 

Another change is that platforms facilitating electronic commerce (e.g. electronic marketplaces) will also become subject to VAT as if they were the sellers. Vendors selling on such platforms, on the other hand, are themselves exempt from paying foreign VAT.

 

A further change in the regulations connected to international commerce is that the tax exemption of import deliveries with a value not exceeding EUR 22 is going to be abolished. This means that after 1 July 2021, value-added tax will be payable on all goods ordered from “third countries” (countries which are not EU member states). At the same time, simplifications, new procedural rules will apply to the payment of VAT on transactions due to similar small quantities of imported products or distance sales from third countries.

 

From 2021, it will be possible to recover VAT for bad debt relating to sales to customers not subject to VAT (e.g. private individual final customers) - this will mean a substantial reduction of the burden, primarily for retail service providers. However, the complex, strict conditions for recovering VAT on irrecoverable claims apply to these cases as well.

 

The general reverse charge rule applicable to labour-hire arrangements will be discontinued. In the future, it will only apply to construction and maintenance works related to real estate regardless of whether the works require a building permit or not.

 

From 2021 a new provision will help easier restructuring within VAT groups. When as a result of various transformations the relationship between the taxpayers is rearranged and therefore the VAT group is changed, the companies can maintain their previous (expiring) VAT groups until joining the new (remaining) VAT group, that is to remain in a VAT group without interruption.

 

Taxpayers will also have the opportunity to indicate the date of effect when they wish to establish, terminate, join or leave the VAT group in their application to the tax authority.

 

The PE rules will become stricter. Providing services will create a permanent establishment for corporate tax purposes even without a physical location, provided that the length for which services are provided by employees/natural persons exceeds 183 days. Another change is that if there is a double taxation treaty in place, that should be used for determining whether a PE exists, which means that regardless of the provisions of the Corporate Tax Act, a PE is created in all cases where one would be created under the treaty.

 

From January 1, 2021, the upper limit of HUF 10 billion of development reserve formation as a tax base reduction item will be abolished. The limit on the pre-tax profit for the tax year that can be used on the basis of the development reserve formation does not change.