A blog about local and foreign VAT matters, best practices, and tips from practioners.

Reciprocity is the principle of making mutual concessions; the granting of privileges in return for like privileges.  The Rule of Reciprocity, which many countries apply, means they will only refund VAT to businesses registered in countries where they too refund VAT ensuring a comparable advantage to a company making a similar claim in the country of the claimant.

Hungary applies the rule of reciprocity as does Serbia but the 2 countries have had no reciprocal agreement in place to refund VAT to each others corporate  taxpayers until now.

Hungary already had reciprocal agreements with all other EU Member States and  Switzerland, Liechtenstein and Norway. Now Serbia is on the list.

Serbia has granted reciprocity with Austria, Belgium, Bosnia, Croatia, Denmark, Germany, Macedonia, Montenegro, The Netherlands, Norway, Romania, Slovakia, Slovenia, Switzerland, Turkey and the UK.

According to the Hungarian Act XLI of 2018 (2019 tax package) there is now an amendment to the VAT laws. The legislator has added Serbia, and we expect within short Turkey, to be added to the list of countries where reciprocity exists. Hence, taxable persons established in these two countries can reclaim VAT.

The reciprocity between Serbia and Hungary will become applicable from the 1st of January, 2019, that is it will concern all invoices issued in 2019 and onwards.

In the case of Turkey, it will take effect on the day after the decision by the Minister for Tax Policy on the receipt of the notification sent by Turkey to Hungary.

This will allow these countries to reclaim VAT from one another, increasing the amount of VAT which can be recovered and reducing the cost of doing business in these territories.


What does this mean for you?

With reciprocity between the countries, companies in Serbia now have the possibility to reclaim the VAT incurred and as soon as it is implemented in the Serbian legislation, Hungarian companies will be able to recover the VAT from Serbia. Reciprocity may even increase the level of business between the countries as the cost of doing business between the two will be significantly reduced.  In Hungary the standard VAT rate is a huge 27%; the highest in Europe, in Serbia it is 20%. With these high VAT rates there are some very substantial VAT claims to be made between the countries and their Tax Authorities.