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, 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) 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.
1. Who is considered to be a foreign traveller?
For the purposes of the VAT Act, foreign traveller 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 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):
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.
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. 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. 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”).
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.
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).
3. What do you need to know about the tax refund application form?
The VAT refund application form must contain the following information:
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. 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.
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. 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. 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.)
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.
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.
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. 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.
7. How to claim tax exemption?
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.
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.
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.
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.
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. 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
  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.