VAT exemption on products sold to foreign travellers
Within the framework of export tax exemptions, the VAT Act, in line with the
provisions of the VAT Directive
[1]
, contains special rules for the exemption of the supply of goods, in relation
to which a foreign traveller buys a product, which is transported from the territory
of the European Community (hereinafter: Community)
[2]
as part of the personal luggage of the foreign traveller (Section 99 of the
VAT Act lays down additional conditions relating to the applicability of the exemption
set out under Subsection 1 of Section 98).
The following is a summary of the most important information regarding the VAT
exemption of products sold to a foreign traveller.
- Who is considered to be a foreign traveller?
- What are the conditions for making a purchase?
- What do you need to know about the tax refund application form?
- For how long and how should the products concerned be exported from the territory
of the Community?
- What are the other conditions for tax exemption?
- What do you need to know about personal and travel luggage?
- How to claim tax exemption?
- How to apply tax exemption in the framework of tax refund?
1. Who is considered to be a foreign traveller?
For the purposes of the VAT Act, foreign traveller
[3]
shall mean a natural person who is
-
not a citizen of any Member State of the Community, and has no right of permanent
residence in any Member State of the Community, furthermore, who
-
a citizen of any Member State of the Community though, his/her permanent address
is outside the territory of the Community.
With regard to the permanent address of the natural person, Point 11) of Section
259 of the VAT Act and Articles 12-13 of the Implementing Regulation
[4]
must also be applied.
Point 11) of Section 259 of the VAT Act states that permanent residence shall
mean the place of abode used for permanent habitation and with which the natural
person has closer personal and economic ties (centre of vital interests), except
if otherwise provided for by any binding legislation of the European Union.
Articles 12 and 13 of the Implementing Regulation provide as follows with respect
to the permanent address and the habitual residence (where one usually resides):
“Article 12
For the application of Directive 2006/112/EC, the ‘permanent address’ of a natural
person, whether or not a taxable person, shall be the address entered in the population
or similar register, or the address indicated by that person to the relevant tax
authorities, unless there is evidence that this address does not reflect reality.
Article 13
The place where a natural person ‘usually resides’, whether or not a taxable
person, as referred to in Directive 2006/112/EC shall be the place where that
natural person usually lives as a result of personal and occupational ties.
Where the occupational ties are in a country different from that of the personal
ties, or where no occupational ties exist, the place of usual residence shall
be determined by personal ties which show close links between the natural person
and a place where he is living.”
2. What are the conditions for making a purchase?
-
The total value of the consideration, including VAT, must be more than 175 euro
or the equivalent in national currency.
[5]
The price of each product does not need to be higher than that amount, if the
total price of the goods, stated on the same invoice is higher than EUR 175. In
2020 the HUF amount of the limit expressed in EUR is calculated at the official
HUF/EUR exchange rate published by the National Bank of Hungary (hereinafter NBH)
on the first working day of October 2019, i.e. 1 October 2019, and the amount
resulting from the conversion must be rounded to HUF 1000.
[6]
Consequently, in 2020 the limit in HUF is 59,000 Hungarian Forints.
-
The foreign traveller must be able to verify his legal status by producing a
valid travel document or some other form of identification in the form of a document
recognized by Hungary (hereinafter referred to collectively as “travel document”).
[7]
-
The foreign traveller must ask for an invoice reflecting the supply of goods.
The data of the identification of the foreign travellers on the invoice (and simplified
invoice) and the VAT refund application form must be the same as the data contained
in the travel documents of the foreign traveller.
[8]
-
With a view to the implementation of exemption, the supplier of the goods fills
out the VAT refund application form when so requested by the foreign traveller,
of which two copies shall be handed to the foreign traveller, (the third shall
be retained by the vendor).
[9]
3. What do you need to know about the tax refund application form?
The VAT refund application form must contain the following information:
[10]
-
name, address and tax number of the vendor;
-
name and address of the foreign traveller (purchaser) and the number of his/her
travel document (completed on the basis of the data contained therein);
-
number of the invoice made out on the supply of goods;
-
total invoiced amount on the supply of goods, inclusive of VAT;
-
a place where it can be signed and sealed in proof of exportation endorsed by
the customs office of exit from the territory of the Community.
The VAT refund application form shall be printed in at least Hungarian, English,
German, French and Russian languages, and shall be filled out in Hungarian, English,
German or French languages.
[11]
A VAT refund application form is completed by the supplier of the goods, based
on the data of the invoice or simplified invoice that certifies the purchase.
One VAT refund application form may contain the data of one invoice only.
[12]
A regular form provided or a form approved by the tax authority may be used as
the VAT refund application form. The ‘VAT refund application form for foreign
travellers’, introduced by the tax authority (i.e. VAT refund application form)
and its completion guide may be obtained in large post offices and may be ordered
to be delivered to any post office. If the vendor intends to use a VAT refund
application form other than the form introduced by the tax authority, the form
may be used, if it has previously been approved by the tax authority.
[13]
The VAT refund application form, used regularly by the vendor and approved by
the tax authority must be available at the vendor.
4. For how long and how should the products concerned be exported from the territory
of the Community?
The exemption may be applied to the supply of products or goods pursuant to Section
99 of the VAT Act only if the customer exits the goods purchased in Hungary from
the territory of the country, with the simultaneous presentation of the original
copy of the invoice (or simplified invoice) to the customs authority, within 90
days from purchase in his/her personal or travel luggage, and the customs office
of exit from the Community certifies the exit by affixing its seal and endorsement
on the VAT refund application.
[14]
The customs authority endorses the VAT refund application form only when the
goods are transported to a country outside the European Union. Subsequent certification
of exit on the tax refund application form may not take place. More than one VAT
refund application forms may be endorsed in the course of one single customs procedure.
(The customs authority shall withhold the second copy of the VAT refund application
form, sealed and endorsed, from the foreign traveller.
[15]
)
The VAT Act sets out as an additional condition for tax exemption with respect
to the product that within the time limit of 90 days the goods supplied may not
be used or consumed with the exception of sampling and trial production.
[16]
5. What are the other conditions for tax exemption?
Even if other statutory conditions prevail, the supply of goods may be exempt
from the tax pursuant to Section 99 of the VAT Act, only if the first copy of
the VAT refund application form, certifying the exportation of the goods within
the deadline, endorsed and sealed by the customs authority, is available at the
vendor. In order to receive the tax refund, the foreign traveller (or his/her
proxy) must return also his own copy of the invoice (or simplified invoice) to
the vendor.
[17]
6. What do you need to know about personal and travel luggage?
Given that the VAT Act does not define the concept of personal or travel luggage,
nor is it defined in the VAT Directive or in the Implementing Regulation, the
meaning of this term shall be construed in the light of its ordinary meaning.
For the purposes of the ordinary meaning of the word, part of the luggage shall
be considered to be a product which is supplied/exported on an occasional basis
and which – due to the nature and quantity – is considered to be for private and/or
personal use or for family purposes or for gift. In addition to this, it is also
important that the procurement is of an occasional (ad hoc) nature and not of
a commercial one.
The purpose of the tax exemption scheme for the supply of goods to a foreign
traveller is to exempt goods carried (exported) in the course of passenger travel out of the Community and not, as a general rule, to exempt goods exported outside
the Community. In Hungary, regarding export traffic, neither quantitative nor
value thresholds/limits have been introduced in respect of goods exported by a
foreign traveller, but based on the nature of the product and the overall circumstances
of the case (e.g. regularity of the purchase, sequential delivery) certain cases
may be excluded – according to the everyday interpretation of the meaning of personal
or travel luggage – from the application of VAT exemption on the basis of Section
99 of the VAT Act. Thus, no VAT exemption on the basis of Section 99 of the VAT
Act may be granted, for example, in the case of a person – whose status is otherwise
regarded as a foreign traveller – exporting a passenger car from Hungary outside
the territory of the Community, given that the concept of personal and travel
luggage and does not include a passenger car.
The following is important to be noted: the fact that tax exemption under Point
b) of Subsection 1 of Section 98 and Section 99 of the VAT Act does not always
apply to the export of goods during passenger traffic does not mean that the VAT
exemption under Point a) of Subsection 1 of Section 98, that is to say, exports
of goods in the classic sense, is not applicable.
This is true even if the buyer/purchaser is a non-taxable natural person who
does not have a tax identification number (TIN), given that the buyer is not required
to have a TIN to be exempt from tax on his/her sales outside the Community. However,
in the majority of cases in the country of destination, that is to say, the country
to which the product is shipped, this may result in the buyer having to pay import
taxes or other public charges on the product in the country of destination. Thus,
the supply of goods by a domestic taxable person is exempt from VAT but, depending
on the rules of the country of destination, the customer/purchaser may be liable
for payment of taxes or other charges.
The VAT Act states that tax exemption based on Subsection 1 of Section 98 shall
not apply (thus such sales to a foreign traveller/passenger are not exempt either)
in connection with goods transported by the customer himself/herself for the equipping,
fuelling and provisioning of pleasure boats and private aircraft or any other
means of transport for private use.
[18]
Under the meaning of that provision, for example, the sale of tires, other equipment
and accessories purchased for a private car is also not exempt from VAT.
The Implementing Regulation sets out another important rule when it is stated
that ‘Means of transport for private use’ as referred to in point (b) of Article
146(1) of Directive 2006/112/EC [this is the provision on which Point b) of Subsection
1 of Section 98 and Subsection 4 of Section 98 are based] shall include means
of transport used for non-business purposes by persons other than natural persons,
such as bodies governed by public law within the meaning of Article 13 of that
Directive and associations.
[19]
7. How to claim tax exemption?
[20]
-
The exemption may be applied indirectly, i.e. through the subsequent refund of
the VAT charged to the foreign traveller. Foreign travellers may request the refund
of the tax paid in relation to the supply of the goods from the vendor after the
exportation of the goods, by submitting the documents required for the tax refund
and supporting the lawfulness of the exemption. The vendor reports the VAT charged
to the foreign travellers in the supply of goods as payable tax in the declaration
for the tax assessment period that contains also the date of the supply of goods.
The vendor may deduct the tax, refunded to the foreign traveller in his declaration
prepared for the tax assessment period, during which the tax was refunded to the
foreign traveller.
[21]
-
Contrary to the above, the vendor may also decide, at his own risk, to sell the
goods to the foreign traveller free of VAT (i.e. not to charge tax to the foreign
traveller in the invoice issued for the supply of goods). Even in such cases the
foreign traveller must present to the vendor the first copy of the VAT refund
application form, endorsed and sealed by the customs authority. If, e.g., the
vendor is unable to support the lawfulness of the exemption pursuant to Section
99 of the VAT Act, and the transaction cannot be exempt of tax pursuant to the
other requirements of the VAT Act either, it is advisable for the vendor to declare
and pay the tax on the supply of goods in a self-revision of the tax assessment
period, which includes also the date of the supply of goods. (The vendor may not
apply exemption to any transaction pursuant to Section 99 of the VAT Act, if the
VAT refund application form, endorsed and sealed by the customs authority is not
available, or if the goods are exported over a period of 90 days.)
8. How to apply tax exemption in the framework of tax refund?
The foreign traveller may apply for VAT refund to the taxable person from whom
the goods were purchased. In order to receive VAT refund, the first copy of the
original VAT refund application form, endorsed by the competent customs authority,
and the invoice issued by the vendor must be submitted to the supplier.
[22]
Refund of VAT may be requested by a person acting in the name and behalf of the
foreign traveller who presents a power of attorney made out in his/her name in
writing by the foreign traveller. The proxy or representative of the foreign traveller
shall hand over to the vendor power of attorney made out in his/her name in writing.
[23]
The refund shall be paid to the foreign traveller in forints, in cash. However,
the currency and the terms of payment may be altered subject to mutual consent
by the vendor and the foreign traveller.
[24]
It is the vendor’s responsibility to ensure, simultaneously with the tax refund,
that the invoice (simplified invoice) made out on the supply of goods cannot be
used for claiming any additional refund by affixing “VAT refunded” (“ÁFA elszámolva”)
on the original copy of the invoice.
[25]
The supplier must make a photocopy of the document, which is no longer suitable
for additional VAT refund prior to the return of the invoice (simplified invoice)
to the foreign traveller, and shall keep that photocopy in his records.
The customs and other rules applicable to passenger traffic are available in
details in Hungarian in the “Information for travellers” under the menu point
“Publications” on the homepage of the National Tax and Customs Administration
(www.nav.gov.hu).
National Tax and Customs Administration
[1] Article 147 of Council Directive 2006/112/EC on the Common System of Value
Added Tax.
[2] Subsection 2 of Section 4, Point b) of Subsection 1 of Section 98 and Section
99 of Act CXXVII of 2007 on Value Added Tax (hereinafter referred to as VAT Act).
[3] Point 10) of Section 259 of the VAT Act.
[4] Council Implementing Regulation (EU) No 282/2011 of 15 March 2011 laying
down implementing measures for Directive 2006/112/EC on the common system of value
added tax.
[5] Point a) of Subsection 1 of Section 99 of the VAT Act.
[6] Subsections (1)-(2) of Section 256 of the VAT Act.
[7] Point b) of Subsection 1 and Subsection 2 of 99 of the VAT Act.
[8] Subsection 2 of 99 of the VAT Act.
[9] Subsection 2 of 99 of the VAT Act.
[10] Subsection 10 of Section 99 of the VAT Act.
[11] Subsection 11 of Section 99 of the VAT Act.
[12] Subsection 2 of Section 99 of the VAT Act.
[13] [11] The approval of the form to be applied falls within the scope of competence
of the Central Management of the National Tax and Customs Administration, Department
of Matters of Specific Competence.
[14] Point c) of Subsection 1 of Section 99 and Point a) of Subsection 2 of Section
98 of the VAT Act.
[15] Subsection 3 of Section 99 of the VAT Act.
[16] Point b) of Subsection 2 of Section 98 of the VAT Act.
[17] Subsection 6 of Section 99 of the VAT Act.
[18] Subsection 4 of Section 98 of the VAT Act.
[19] Article 47 of the Implementing Regulation.
[20] Point b) of Subsection 4 of Section 99 of the VAT Act.
[21] Subsection 9 of Section 99 of the VAT Act.
[22] Subsection 6 of Section 99 of the VAT Act.
[23] Point b) of Subsection 5 of Section 99 of the VAT Act.
[24] Subsection 7 of Section 99 of the VAT Act.
[25] Subsection 8 of Section 99 of the VAT Act.