VAT Group

Klaudia Gáspár at January 10, 2023

Group tax residence is an optional choice for domestic related companies under the value added tax (VAT) system. A VAT group may be created by taxable persons whose place of economic establishment is in Hungary (or in the absence of such place, whose residence or usual place of stay is in Hungary) and who are all considered as related parties.

A joint, express and unanimous written request from the members is required in order to create a VAT group. This request must be made on form 23T113, and it needs to be approved by the national tax authority (the first two digits in the name of the form refer to the current year).

It is important to mention that it is not possible to apply for group tax liability if the taxpayer is already a member of a VAT group or has already submitted an application for the establishment of another group and its assessment has not yet been finalised.

The application may indicate the date by which the group is requested to be established. The group will come into existence on that date but no sooner than the date on which its authorisation under the State Tax and Customs Administration becomes final.

By the creation of the group, the unique tax identification number of the members change and the VAT group is given a new, independent Tax ID. Furthermore, the group can also apply for a EU VAT number.

The essence of a VAT group is that no value added tax payment obligation arises on the intra-group transactions between group members and the individual VAT-able personality of the group members is eliminated and the members qualify as one tax subject jointly. On the other hand, purchases from or sales to taxable persons outside the group are considered as VATable activities.

Those taxpayers who opt for group taxation must file a monthly tax return.

When establishing a group VAT liability, it is needed to elect a group representative. The tasks of this representative include the following:

  • liaising with the tax authorities
  • keeping the group’s records
  • preparing the group’s tax return
  • managing the group’s current account
  • settlement with members
  • reporting of changes to the tax authorities
  • collectiong taxes from members, the settlement of tax payable/claimable between members

Being part of a VAT group has many advantages.

One of the most significant one is that VAT is not charged on invoicing between group members. In addition, administrative tasks are simplified as group members prepare a common tax return.

Moreover, the deduction rate can be changed. If a group member does not have 100% VAT deductibility and therefore cannot claim 100% of its deductible VAT, belonging to the group can improve the deduction rate and increase the deductibility of input VAT.

In order to extend or narrow the VAT group, an application must be submitted by the group representative. This can be done on form 23T113, only electronically.

When a new taxpayer is intending to join, the supplementary form 16 must also be submitted. In the case of a new member, the following things are required:

  • a declaration of consent by the existing members
  • a description of the record-keeping system for seperation of external and internal transactions
  • a commitment of joint and several liability
  • the name, adress, tax number and proof of affiliation of the new member

The application may indicate the date from which they wish to join the group. Joining will take place at that time, but no sooner than the date on which the NAV permit becomes final. The new member must also prepare a final return as if it were to cease to exist by succession. The turnaround date is the day before the joining.

For the application to withdraw from group tax liability, supplementary form 17 must be completed. This requires an unanimous declaration of consent by the members and also an undertaking by the outstanding member to fulfill its joint and several liability as a non-resident taxpayer to the non-president group members from the date on which the withdrawal becomes effective.

This application may indicate the date from which they no longer wish to be a member of the group. Withdrawal from the group will take effect at that time, but no sooner than the date on which the NAV permit becomes final.