Major VAT changes from 1st January, 2010

Change of main rule regarding the place of supply of services

Based on the main rule of the VAT Act regarding services effective until 31st December, 2009., the place of supply is determined by the seat of the provider of the service.

In accordance with the main rule effective from 1st January, 2010., the place of supply of services provided between taxpayers is determined by the place of economic establishment of the party ordering the service. The place of economic establishment may be the taxpayer’s seat or permanent establishment. If the taxpayer has one or more sites in addition to its seat, it has to be examined which of these is the most directly concerned by the transaction in question. This practically means that Hungarian value added tax will not have to be charged on a service provided to a company having its seat abroad as this will be settled by the recipient of the service in line with the already well-known rules of reverse taxation.

Community transport and agency services and toll manufacturing

Probably the most important of the changes entering into force next year is the elimination of the rule which ties the place of supply to the tax number of the party ordering the service. In case of intra-Community transport and auxiliary services provided to foreign companies, agency services and toll manufacturing special attention has to be paid to the fact that from January the place of the seat, permanent establishment of the recipient of the service determines where the transaction is taxed. Accordingly, the current option of the recipient regarding the tax number of his under which – consequently, the Member State in which – he intends to pay tax ceases.

If, for instance, a Hungarian transport company has a client, which has its seat in Switzerland but also has a French tax number (not a permanent establishment but only a so-called tax registration) under which this client intends to use the transport service from Hungary to France, this year the Hungarian service provider will have the opportunity to issue the invoice to the French tax number of the client and to recognize the transport service as an intra-Community transaction. From next year, the same transaction will be taxed at the client’s Swiss seat and consequently, it will not quality as an intra-Community service.

Property-related, cultural, art and educational services, restaurant and other hospitality services

The rules pertaining to property-related (e.g. real estate agency, real estate expert), cultural, art and education services remain unchanged. In case of restaurant and other hospitality services the place of supply of the service will be the place where the service was actually provided. Accordingly, the VAT on these services will have to be paid in the future also in the state in which the property is located (for property-related services) or where the service is actually provided.

Leasing of means of transport

Special rules will apply to the leasing of means of transport from 1st January, 2010. The new act differentiates between short-term leasing (not exceeding 90 days for water vehicles and 30 days for other means of transport) and long-term leasing. In case of short-term leasing the place of supply of the service is determined by the place of handover of the means of transport while in case of long-term leasing the VAT is chargeable in the state in which the lessor has its seat.

Rules of services provided to individuals

Under the main rule, the place of supply of the services provided to individual clients will be determined by the place of the seat or permanent establishment of the service provider in 2010 also.

In most cases, the taxation of services provided to individuals will not change from next year. In case of advertising and “intellectual services” – e.g. attorney, advisory or accounting services – the service provider must issue invoices to Community individuals charging VAT based on the rules of the state of the service provider’s seat. The rule that non-EU individuals will not have to pay VAT on these types of services remains in place.

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