Hungary: domestic reverse charge mechanism


The domestic reverse charge mechanism has been extended to cover new situations from 1 January 2008.

The mechanism now applies (among others) to voluntary VAT registration for supplies related to the sale of land or buildings, as well as construction of buildings under a contractor’s agreement, construction and repair activities, maintenance, cleaning, refurbishment, reconstruction and demolition activities. Because of the ambiguity of the applicable legislation, non-binding rulings can be sought from the Hungarian Tax Authority wherever it is unclear whether the supply relates to land or buildings.

The domestic reverse charge mechanism applies where both buyer and seller qualify as taxable persons for VAT purposes in Hungary and neither is exempt from VAT. They are each required to notify the other of their VAT status and are entitled to request this information from the tax authority as well as from each other.

Instead of including VAT on the invoice, the seller states that the transaction is subject to the reverse charge mechanism, and the purchaser is then required to pay the VAT directly to the tax authority.

Where the domestic reverse charge mechanism is used, VAT becomes chargeable on whichever is earliest of receipt of the invoice, payment and the fifteenth day of the month following the month of supply. The Hungarian Tax Authority has recently ruled that within the scope of the domestic reverse charge mechanism, VAT does not need to be paid on advance payments, only on the final invoice.