In the request for a derogation, Hungary wanted the general VAT rate for temporary agency work to remain subject to reverse charge, as it has been in recent years. However, the European Commission did not support this request, so in accordance with our EU legal harmonization obligations, the relevant part of the Hungarian VAT Act will be amended as follows from 1 April 2021:
Pursuant to Subsection (1) of Section 142, only those temporary agency works remain subject to reverse charge which are in connection with
- transfer of property created by construction and to be registered in the real estate register, or
- construction and other works supplied for the purpose of building, expansion, remodeling and any other form of alteration of the property.
It is also important to emphasize that the additional conditions for reverse charge must also be met at the same time:
- each of the parties concerned is a resident taxpayer,
- none of them has a legal status under which the tax cannot be demanded from them.
The abolition of reverse charge for most temporary agency works means that for such services, the service provider must indicate and pay the amount of VAT on the service.
In connection with the change, the date of fulfilment will be an important cutoff point (before or after the amendment enters into force), on the basis of which it can be decided whether reverse charge or direct taxation should be applied to the invoice.
- If the date of fulfilment of the transaction precedes the effective date of the amendment à the rules of reverse charge must be followed. For transactions with periodic settlement, also the date of fulfilment is relevant regardless of whether the settlement period extends in part or in full over the effective date of the amendment.
- If the date of fulfilment of the transaction is on or after the effective date of the amendment à the rules of direct taxation shall apply. For transactions with periodic settlement, also the date of fulfillment counts, even if the entire settlement period precedes the cutoff day.
To sum up, in the case of periodic settlement transactions, if the period extends over the effective date of the amendment, the period does not need to be divided into reverse charge and direct taxation. The date of fulfilment and the effective date of the amendment shall be compared.