“IMPORT VAT – IMPORT VALUE ADDED TAX” IN CASE OF CUSTOMS CLEARANCE OUTSIDE OF HUNGARY, WITHIN THE CUSTOMS UNION OF THE EUROPEAN UNION

The European Union is a customs union and in case of importing goods from a 3^rd country the importer has the possibility to release the imported goods for free circulation in the Member State according to his choice. Since the value added tax, due for the import is a revenue of a given Member State and as the rate of VAT differs from country to country, there is a special ruling that in case of import, the value added tax is payable to the tax authority of Member State, where the goods are consumed (place of destination). In case, when the goods are not released for free circulation in that Member State, which is the place of their destination, the import is excluded from VAT, so in such case there arises no obligation to pay VAT in that Member State, where the customs clearance is performed.

According to the VAT-Directive the transfer or sales of goods by the importer from the Member State, in where the goods were imported to the country of destination is considered as intra-Community sales exempt from VAT. That means that a customs clearance, carried out in another Member State causes the obligation to pay the value-added-tax in the country of destination – that means in Hungary – and it must be returned in a tax return as an intra-Community acquisition and the tax must be paid. Naturally, if the importer can deduct from his obligations the amount of VAT, payable for intra-Community acquisition – that means if the importer is VAT-registered – than the amount of payable and deductible tax is equal, so there does not emerge a real obligation to pay.

According to Point ba) Para (1) of Section 127. of the VAT Code material condition of entitlement for tax deduction is that the taxable entity shall, in case of intra-Community acquisition dispose with an invoice, issued to his name and evidencing the fulfilment of transaction. This invoice is not identical with the invoice, issued by the commercial partner in the third Member State. Since in this case it is concerned the movement of goods itself between the Member States, the goods must be accompanied by such an invoice, where the persons of both the seller and the buyer are the same. The invoice must bear the EU VAT Registration No.. In case, if in consignor´s Member State the importer was registered as taxable entity, then on seller´s side of the invoice his tax-number is identical with this tax registration No., while on buyer´s side there must stated the Hungarian EU VAT Registration No.. If there shall be no foreign VAT Registration No. – relating to the Member State, where the customs clearance took place – there shall be stated on both, the consignor´s and consignee´s side the same, EU VAT Registration No., assigned by the Hungarian Tax Authority.

How to record the above mentioned facts into the value-added-tax return, resp. into the Cumulative Declaration Form No. 10A60?

Value-added-tax Return (Form No. 1065):

Payable tax:

These acquisitions must be recorded into Lines Nos. 12 – 15 of the tax return, into the lines, corresponding to the respective tax-rates.

(Refer to explanations concerning Lines Nos. 12 – 15 of Form No. 1065).

Deductible tax:

Line No. 65. of the tax return.

In our example: The value of goods, imported from a third country, but customs cleared and released in free circulation in another European Union Member State: 400.000,-HUF.

This same amount shall appear in the value-added-tax return of Importer Ltd. for May 2010, and also in the Cummulative Declaration Form No. 10A60, which must be returned for this same period.

Form No. 10A60 (Details of intra-Community acqusitions and sales):

In case, when the tax-entity imports from a third country to another Member State, the tax entity shall not be liable to register as tax entity according to the rules of Member State, where the import takes place and thus to pay the tax for the import, because there shall emerge for him a domestic tax obligation on the basis of intra-Community acquisition concerning the acquired goods. On Form No. 10A60-02 there must be recorded into Column (a) the code of Member State where the import was carried out, respectively, the code of Member State, where the transfer of property takes place – and there must be stated No. “1” in Column (b). In such case, too, there must be stated the value, calculated excluding the VAT in Column (c).