Help Print this page 

Summaries of EU Legislation

Title and reference

Summaries of EU legislation: direct access to the main summaries page.

This summary is archived.
Languages and formats available
HTML html ES html DA html DE html EL html EN html FR html IT html NL html PT html FI html SV
Multilingual display
Miscellaneous information
  • Archived: true



Commission Opinion COM(1997) 2001 final [Not published in the Official Journal]Commission Report COM(1998) 700 final [Not published in the Official Journal]Commission Report COM(1999) 505 final [Not published in the Official Journal]Commission Report COM(2000) 705 final [Not published in the Official Journal]Commission Report COM(2001) 700 final - SEC(2001) 1748 [Not published in the Official Journal]Commission Report COM(2002)700 final - SEC(2002) 1404 [Not published in the Official Journal]Commission Report [COM(2003) 675 final - SEC(2003) 1205 [Not published in the Official Journal]Treaty of Accession to the European Union [Official Journal L 236 of 23.09.2003]


In its July 1997 Opinion, the European Commission took the view that transposition of the acquis in the direct taxation field should not pose major difficulties for Hungary. As regards indirect taxation, the Commission also considered that Hungary should be able to comply with the acquis regarding VAT and excise duties provided that it kept up its efforts in the area.

The November 1998 Report confirmed that initial assessment, noting that progress had been made while stressing the need for further efforts, in particular as regards VAT. Administrative capacity as well as arrangements for administrative cooperation and mutual assistance also needed to be further improved.

The October 1999 Report found that Hungary had made further progress on transposition of the Community acquis. The adoption of a programme for harmonising the Hungarian VAT system with the acquis was considered to be a major step forward.

The November 2000 Report noted that in general Hungary was making progress in aligning its legislation with the Community acquis. As regards indirect taxation, progress was limited but genuine (application of a specific system to package travel and introduction of a classification system for services). Furthermore, reduced rates of VAT had been abolished for certain products and services but not others (heating oil, district heating, restaurant services, transport and storage of goods), which continued to benefit from a reduced rate of 12%. In the field of excise duties, there was some progress as wine was now subject to excise duties together with sparkling alcoholic intermediate products, cigarettes and rolling tobacco. However, Hungary continued to apply different rates to fruit brandies and other spirits. The efficiency of the tax administration was improved through the introduction of new control measures. At the same time, the rules were simplified for taxpayers. Staff numbers in the administration had risen and an anti-fraud division was created. A new training centre was also opened in May 2000. The records of current accounts were modernised through the use of computers and the number of inspections and audits increased, as did the number of investigations launched by the anti-fraud division.

The November 2001 Report noted that Hungary was continuing to make progress in the area of tax policy. With regard to indirect taxation, the gradual harmonisation of the list of products benefiting from a reduced rate of VAT was planned. The gradual alignment of excise duty rates also continued (harmonisation of minimum rate for alcoholic products and tobacco, increase in duties on fruit brandies and cigarettes). As regards direct taxation, Hungary had fully aligned its tax system with that applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States. Within the tax administration, a special unit to combat abusive practices and fraud relating to excise duties was set up and the revenue received from controls had increased substantially. Collection had improved and the records of current accounts had been modernised. Since January 2001, tax return forms had also been available on-line.

The October 2002 Report notes that Hungary has made limited progress in aligning its tax legislation with the acquis. The modernisation of Hungary's tax administration has continued but there are no developments to report in the areas of direct taxation and indirect taxation.

The 2003 Report states that Hungary is essentially meeting the commitments and requirements arising from the accession negotiations. It is therefore expected to be in a position to implement the acquis in the area of taxation by accession. On the other hand, Hungary still needs to adopt some legislation to complete the alignment process in all areas. It should also continue its efforts to set up the IT systems for the exchange of computerised data with the Community and its Member States.

Hungary has obtained transitional periods to continue the application of the reduced VAT rate on coal, coal-brick and coke, firewood and charcoal, and on district heating services (until 31 December 2007), on restaurant services and foodstuffs sold in similar premises (until 31 December 2007) and on natural gas and electricity (until one year after accession). Derogations were also granted to allow a VAT exemption on international passenger transport, and a VAT exemption and registration threshold of EUR 35 000 for small and medium sized enterprises. Hungary was also granted a derogation to continue applying its excise duty scheme for small fruit grower's distillation, provided that the quantity does not exceed 50 litres of fruit spirit per year per household and provided that the reduced excise rate is not less than 50% of the standard national duty rate for alcohol.

The Treaty of Accession was signed on 16 April 2003 and accession took place on 1 May 2004.


The body of EU law in the area of direct taxation mainly concerns certain aspects of corporation taxes and capital duty. The four Treaty freedoms have a wider impact on national tax systems.

The legal framework for indirect taxation consists primarily of harmonised legislation in the field of value added tax (VAT) and excise duties. This includes the application of a non-cumulative general tax on consumption which is levied at all stages in the production and distribution of goods and services and requires equal tax treatment of all domestic and import transactions.

In the field of excise duties, established EU law and practice comprises harmonised tax structures and minimum rates of duty together with common rules on the holding and movement of excisable goods (in particular, the use of tax warehouses).


Value Added Tax

Hungary's current VAT system has been based on the main principles of Community VAT legislation.

Hungary has made further progress in aligning its legislation with the 6th VAT Directive. In 1999, it adopted a customs table following the combined nomenclature and tightened up the reverse charge mechanisms for certain services. Public television and radio services are now exempted from VAT, except for those with a commercial purpose. Finally, the administrative burden on SMEs has been reduced by introducing annual VAT declarations.

Nevertheless, a number of discrepancies between the Hungarian VAT legislation and the Community rules continue to exist, notably as regards tax rates. Furthermore, adjustments are needed in the areas of taxable persons, taxable transactions, special VAT refund schemes, tax exemptions and simplification procedures if Hungary's legislation is to be fully aligned with the acquis.

In 2000, the list of products and services benefiting from reduced rates should be limited and the zero rating system abolished.

In 2001, Hungary continued its efforts to harmonise and implement the acquis relating to VAT but should step up these reforms in relation to the scope of the reduced VAT rates and the abolition of zero rating as well as refunds for foreign taxable persons and special regimes. The Commission's 2002 report does not report any developments in the Hungarian legislation in this field.

By the end of 2003, Hungary still needed to complete alignment with regard to the scope of reduced VAT rates and exemptions, except in the areas where it had obtained transitional periods, and the definition of taxable persons. Hungary also needed to introduce the intra-Community regime and the special schemes for investment gold and to adjust its special scheme for second-hand goods. The special schemes for hotels and the flat-rate scheme for small and medium-sized enterprises, neither of which conformed with the acquis, also needed to be addressed. Hungary should also eliminate some remaining discrepancies with the acquis concerning the place of taxation in respect of certain supplies, the VAT refunds and the right of credit for goods used for both taxable and non-taxable purposes.

Administrative cooperation

Administrative cooperation in the field of taxation between Hungary and the EU Member States is currently based on bilateral agreements, the scope of which is often limited to preventing double taxation. To comply with the relevant acquis on administrative co-operation and mutual assistance by the time of accession, Hungary must amend its legislation as regards data protection. In November 2000, Hungary must further improve cooperation and mutual assistance with the tax administrations of the Member States. In November 2001, Hungary must make additional efforts to develop IT systems permitting electronic data exchange with the services of the Community and the Member States. Progress was made in this area in November 2001 with the amendment of the rules on taxation and on mutual assistance for the recovery of claims, which will only enter into force upon Hungary's accession to the European Union (EU), probably in May 2004.

By the end of 2003, all the structures needed for tax administration were in place. The central liaison office (CLO) was operational, though the excise liaison office (ELO) was yet to be established. Preparations for the VAT Information Exchange System (VIES) and for the System for Exchange of Excise Data (SEED) databases were ongoing and proceeding according to plan.

Excise duties

The basic elements of excise duty are already in place in Hungary. New legislation came into force in January 1999 which opened up the possibility of establishing tax warehouses for commercial purposes in Hungary. The duty suspension system was also defined more precisely. The current practice of levying different rates for fruit brandies and other spirits is in contradiction with the Community rules, which stipulate a single excise duty for interchangeable products. Other outstanding issues relate to the minimum rate of excise duty for cigarettes and to the duty exemptions for mineral oils and the holding and movement of excisable goods.

In November 2000, the excise duties on mineral oils, cigarettes, alcoholic intermediate products and rolling tobacco were still not adjusted. The rules on mandatory tax exemptions also needed to be brought into line with the acquis. In November 2001, despite the progress made, Hungary needed to continue to make efforts in relation to the duty suspension system and the rates for cigarettes, other tobacco products and spirits.

Since then, the gradual increase of duty levels has continued. In particular, the level of duty on lower-taxed fruit and wine brandy has been increased. Furthermore, the specific duty on cigarettes of the price category most in demand was increased in January 2002, as well as the ad valorem duty on fine cut tobacco.

By the end of 2003, in order to complete alignment with the acquis, Hungary needed to further align its legislation regarding the level of duty on some categories of products, and some exemptions. Hungary also needed to extend the domestic suspension scheme to intra-community movements and to eliminate some remaining discrepancies with the acquis concerning the definition of beer, the exemption for wine produced by tax warehouses for own consumption and the exemption for alcohol used in the preparation of foodstuff. The gradual increase of excise duties on cigarettes is proceeding according to schedule to reach the minimum rate level on 31 December 2008, in conformity with the transitional period agreed in the accession negotiations.

Direct taxation

As regards direct taxation and corporation tax in particular, further alignment is needed in the area of taxation applicable to groups of companies and to parent companies and subsidiaries of companies based in the Member States. Capital duty needs to be brought into line with the Community rules. In November 2000, Hungary needed to complete the revision of its legislation in accordance with the code of conduct on corporation tax.

In November 2001, Hungary still needed to re-examine its legislation to ensure that it complied with the Code of Conduct for Business Taxation. The regulations on the taxation of dividends and certain income obtained by non-residents also needed to be reviewed.

The Commission's 2002 report noted that Hungary must continue with alignment, particularly with regard to the abolition of the withholding tax applied to dividends distributed to EU-based parent companies of Hungarian subsidiaries. By the end of 2003, Hungary needed to complete transposition with regard to taxes on raising capital, and transpose EC legislation on interest and royalties and on the taxation of savings income. The relevant administrative structures in this area were in place.

Last updated: 13.01.2004