Hungary has introduced the retail surtax again

The Hungarian Government introduced a new retail surtax effective from 1 May 2020. This is being introduced following the Tesco Hungary decision by the Court of Justice of the EU in March where the taxpayer unsuccessfully challenged the Hungarian Government that the previous retail tax (between 2010 and 2012) unlawfully discriminated against foreign owned retailers when compared to their domestic competitors.

Although originally the new law was published to be in force temporarily (until the end of the COVID related state of emergency period), the Hungarian Government has submitted a proposed act to the Parliament which will make the retail surtax a permanent tax applicable also after the COVID period.

The new retail tax applies to traditional retail sales in physical stores as well as electronic sales via websites. Foreign entities having no permanent establishment in Hungary but distance selling goods to Hungarian customers are also subject to tax.

The scope of the tax is retail activities defined in statistical classification (NACE/TEÁOR ’08) such as retail sale of foods, beverages, tobacco, electrical household appliances, telecommunication equipment, books, sports equipment, toys, clothes, furniture, cars, car parts, fuel, medicines, etc.

The tax is based on the retail annual net sales revenues plus revenues deriving from services provided to the suppliers and the amount of discount received from the suppliers. The rates are progressive in bands, as follows:

  • if the tax base is less than HUF 500 million (c. £1.2m), the tax rate is 0 %,
  • for the tax base part between HUF 500 million and HUF 30 billion (c. £74m), the tax rate is 0.1%,
  • for the tax base part between HUF 30 billion and HUF 100 billion (c. £245m), the tax rate is 0.4%
  • for the tax base part above HUF 100 billion, the tax rate is 2.5%.

The retailers above the exempted band have to submit an advance tax return to the end of May 2020. The monthly advance to be paid is 1/12 of the tax amount calculated based on the sales in the previous year.

The annual final tax return has to be submitted till the end of the fifth month following the financial year.

There are still some open interpretation questions, e.g.

  • How to appropriately differentiate retail and wholesale trade?
  • Whether sales from 3rd country, outside the European Customs Union entities (when the customs clearance is done in Hungary by the customers) are subject to tax.

Should you have any question relating to the surtaxes levied on the Retail and FMCG sectors, our industry experts would be pleased to assist you.

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