Pursuant to the Act CL of 2017 on the Order of Taxation every tax payer in Hungary has to seek a tax number from the Hungarian Tax Authority (called NAV in Hungary) before being able to carry-on a business activity. Unlike other countries the tax authority in Hungary does not issue a separate tax ID number for different types of taxes, so every tax payer receives a single Tax ID, which is valid to identify the entity or the person for the purposes of all tax processes.
The Hungarian Tax ID contains 11 eleven digits with the structure below which makes it easy to determine whether your business partner is obliged to pay the Hungarian VAT or if the transaction is free of VAT:
Where the letters ’x’, ’y’ and ’z’ represent numbers:
- xxxxxxxx– this part of the number identifies the taxpayer,
- ythe so called VAT code
- zzthe area code
The tax payer’s VAT code (y) may be any of the following:
- 1 = personal VAT free taxpayer (generally small entities)
- 1 = Taxpayer performing VAT free activity
- 2 = Taxpayers under regular VAT rules
- 3 = Taxpayers under the rules of simplified entrepreneur tax paying rules (not applicable anymore)
- 4 or 5 = VAT group taxpayers
There are several differences between legal entities and individuals seeking Tax ID in Hungary. When founding a legal entity the founder has to complete a form to request a Tax ID, which is mandatory for every entity. Without Tax ID no business can be incorporated according to act CL of 2017 on the Order of Taxation.
When incorporating a business, the district tribunal court responsible for the company register submits the application directly to the tax authority, which makes the decision on whether you are entitled to a Tax ID or not. If the director has a previous criminal record, is a tax debtor or is banned from business management, the company will not be incorporated.
If any offence relating to tax fraud is committed, the Tax ID might be deleted by the tax authority immediately, after which the entity will be struck-off from the company register, which means it does not exist anymore.
Generally, a taxpayer that is not liable pay VAT is easy to recognise, having the so-called VAT number 2 in it’s Tax ID, however it can be changed immediately, when the conditions of being VAT free does not apply anymore.
For example, if the taxpayer reaches the VAT free income limit, currently 12 million HUF a year, (cca.: 34.000,- EUR) it is obliged to notify the tax authority immediately and the last invoice whith which the limit has been reached falls under the general VAT rules and the applicable measure has to be paid.
As the tax authority sees all invoices created (every taxpayer, with few exception is obliged to be in online contact with the tax authority and upload every invoice in real time) – it is highly recommended not to forget this notification.
TAX ID application process for individuals and self-employed entrepreneurs persons:
In some cases individuals do have to seek tax ID, which can be accomplished relatively easily. As every self-employed entrepreneurs and legal entities are obliged to maintain online contact with the tax authority, the application can be made online. It is important to note, that every individual, applying for an online tax ID has to have the customer portal registration, which can be done personally at any government office upon identification.