VAT groups were introduced in January 2004 to encourage financial institutions, insurance companies and investment service providers to establish their back-office (data-processing) centres in Hungary. New rules have now been introduced from 1 January 2005 to make the regime more attractive to foreign investors.
The VAT group regime exempts financial institutions, insurance companies and investment service providers from paying standard VAT (at 25%) for back-office services supplied to them by their affiliates. This reduces the cost of the back-office services by 20% where the VAT is non-recoverable by the payer (i.e. because the services it provides are VAT-exempt).
Members of a VAT group must:
- elect in advance to form a VAT group
- number at least two
- each be a Hungarian company or a registered Hungarian branch of a non-Hungarian company belonging to the same commercial group of companies
- at least one member must be an affiliated entity to which certain activities have been outsourced; other members must be financial institutions, investment service providers or insurance companies
- be subject to Hungarian taxation
- NOT owe HUF 5,000,000 (c. €20,000) or more in unpaid VAT (i.e. be subject to a final and binding assessment from the Hungarian tax authorities)
Sales of goods between members of a VAT group will still be subject to standard Hungarian VAT in the usual way, as will the supply of goods or services between a VAT group member and a non-member.
For further information or advice on VAT groups, please contact Dr. Anna Bürchner on +36 1 484800 or at anna.burchner@cms-cmck.com or Dr. Eszter Kálmán on +36 1 483 4800 or at eszter.kalman@cms-cmck.com.
