The most significant aspects in Value Added Tax (VAT), as well as changes to other laws which affect the VAT Act effective as of 1 January 1997 were as follows:

1. The general rate of VAT on the sale of goods and the provision of services in Hungary remains 25%. The reduced rate of VAT applying to certain specified goods and services remains 12%. Export of products is subject to VAT at zero rate.

2. It is no longer be possible to reclaim the VAT content of bad debts.

3. The date of performance for leasing transactions and instalment purchases as defined by the VAT Act, shall be the date when the asset is given into possession, contrary to the previous rule that the date of performance was the due date of payment. VAT must now be paid with respect to the entire leasing fee at the time of transfer of the asset. In the case of contracts which have already been concluded, if the asset is given into possession by the end of the year, then the VAT liability will arise at such time as is defined in the previous rules, i.e. on the basis of the individual instalments.

4. Pursuant to the amendment to the Accounting Act, in 1997, the non-recoverable VAT on purchase of tangible and fixed assets must be capitalised.

5. Companies defined by the Act on Corporate Tax as offshore companies will become subject to VAT.

6. The definition of residential real estate no longer includes land.

7. The VAT content of consideration paid in cash, in excess of a certain amount which is to be defined at a later date, cannot be reclaimed. It is likely that the amount will be HUF 1 million.

8. The purchaser will be regarded as a guarantor for the seller's VAT liability until the purchaser has paid the entire amount of the consideration to the seller.

9. In the case of goods which are given for use free of charge, VAT is due only if the input VAT was deductible at the time when the goods were purchased.

Accordingly, from 1997, no VAT will be payable for private use of company cars.

10. The accumulated tax base of the sale of products and provision of services must reach HUF 2 million in a tax year in order for the taxpayer to be entitled to reclaim VAT (this amount was previously HUF 1 million).

11. The special regulations with respect to the purchase of used products from non-registered taxpayers will be abolished. From 1997, the tax base on the resale of used products purchased from non-registered taxpayers may be the difference between the sales and purchase price - as such is chosen by the taxpayer.

12. A special reclaim possibility may be utilised for the acquisition of equipment which can read electronic cards.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

If you require any further information on Hungary, please call Peter Gerendasi at Price Waterhouse, Budapest: tel: ++ 36 1 269 6910 fax: ++ 36 1 269 6938
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