The Hungarian Government has made a significant amendment just weeks into 2025 by increasing the VAT exemption threshold for small and medium-sized enterprises (SMEs). Despite the autumn tax package for 2025 remaining silent on this matter, the new limit has been set at HUF 18 million, up from the longstanding HUF 12 million. This increase applies retroactively from 1 January 2025. Taxpayers have until the end of February to opt in for the exemption.
Background – better late than never
As we covered back in October 2024, an important amendment to Directive 2020/285/EU was set to enter into force on 1 January 2025. The ceiling of the VAT exemption threshold applicable by Member States has been increased to EUR 85,000 (i.e. HUF 26,222,500 in Hungary since the exchange rate to be used for the conversion is the one published by the European Central Bank on 18 January 2018, where EUR 1 = HUF 308.5). Member States have at their discretion to determine the VAT exemption cap, the amendment implies an opportunity – but not a requirement – for Member States to increase this cap, accordingly.
Historically, Hungary's VAT exemption threshold has gradually increased since the adoption of the VAT Act (2007 – HUF 5 million, 2013 – HUF 6 million, 2017 – HUF 8 million, 2019 – HUF 12 million, 2025 – HUF 18 million (new threshold)).
Retroactive amendments – back to the future
On 25 January 2025 the Hungarian Government amended the VAT Act concerning the exemption threshold. According to the new provision, which entered into force on 26 January 2025, but applies retroactively as of 1 January 2025, the threshold for eligibility for the exemption has been raised from HUF 12 million to HUF 18 million. As usual, taxable persons may opt for a domestic exemption for the year 2025 if the total amount of the consideration, expressed in HUF and annualized, which they have received or are entitled to receive in return for the supply of goods or services in Hungary neither in the calendar year 2024, nor reasonably foreseeable or actual in the calendar year 2025 does not exceed the sum of money equivalent to HUF 18 million. Additionally, taxpayers who surpassed the previous HUF 12 million limit but remained under HUF 18 million over the past two years are now eligible for the exemption in 2025.
While the increase is a positive development, the retroactive nature of the change has caused certain complications. In response, the Hungarian Tax Authority has issued a quick practical guide, stating that (a) invoices already issued in 2025 with VAT should be corrected and re-issued without VAT, (b) VAT returns (if any) should be amended through self-revision for both VAT payable and deductible, and (c) Receipts - where invoices are not required - that include VAT should not be corrected.
Notably, VAT paid on receipts - e.g. issued for B2C transactions - remains with the taxpayer applying the exemption retroactively, effectively making it a ‘gift’ from the legislator. Taxpayers now have until the end of February at the latest to opt-in for the exemption (taxpayers already under the scheme from last year have no further to do).
By Balint Zsoldos, Head of Tax, KCG Partners Law Firm
