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VAT rules to change May 1

THE EASING of the cash flow burden placed by value-added tax (VAT) on intra-community trade and imports from outside the EU; a hike in administrative tasks for local companies; the introduction of a new VAT grouping scheme; positive changes in VAT regulations concerning call-off stock. These are among a slew of changes to the law on VAT passed by the Hungarian Parliament early March.

Lawmakers also reversed a regulation obliging foreign consignment stock companies to establish branch offices or subsidiaries when serving clients from Hungary.

The amendments will mostly take effect upon EU accession on May 1.

"The new VAT law brought in several unexpected positive changes," Róbert Heinczinger, tax partner at Ernst & Young Advisory Kft, said last week.

"Despite its shortcomings, the new law reflects the lawmakers' efforts to improve Hungary's competitiveness in the EU," commented Regina Simon, tax manager at rival KPMG.

Amongst the positive changes, Simon noted that importers no longer have to finance the VAT on all imports from their cash flow. From May 1, local companies involved in intra-community trading - trading within the EU - do not have to pay VAT in advance on products brought in from within the community.

Financial service providers, banks, and insurance and investment companies will have the opportunity to form a VAT group with their outsourcing subsidiaries. Transactions between members of such groups will be exempt from VAT.

According to Simon, the new VAT grouping scheme will increase cost efficiency in the financial sector, but it is only a small step toward making Hungary a regional financial centre, as it lacks a real cross-border effect.

The Slovak Spectator edited these articles for length and style

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