Small business VAT exemption 2026: the HUF 20 million threshold

What the exemption means

An entrepreneur who elects the small business VAT exemption charges no VAT on their invoices. The invoice total equals the net amount; no VAT rate or VAT figure appears, and a reference to the exemption is required instead.

In exchange, they cannot deduct the VAT on their own purchases. Buy a laptop for HUF 500,000 plus VAT and the HUF 135,000 of VAT is your cost — it cannot be reclaimed.

This symmetry is the whole point. The exemption is not a gift but a trade: simpler administration and a lower final price for your customer, in exchange for losing the right of deduction.

What happens when you cross HUF 20 million

This is where most mistakes occur, because the rule does not follow calendar logic.

The exemption ends with the transaction that crosses the threshold. Not at month end, not at year end, not on the date you notify the authority — but on the specific invoice whose amount carried your revenue past HUF 20 million.

That means VAT must be charged on that invoice, in full. If you stand at HUF 19.5 million and issue an invoice for HUF 1 million, the entire million is subject to VAT — not merely the HUF 500,000 of "overhang".

The consequence is durable, too. After crossing, you cannot re-elect the exemption for the remainder of the current year or for the following calendar year. One badly timed large invoice therefore puts you in the VAT system not for a month, but for more than a year.

How to avoid the surprise

The defence is simple: track revenue continuously rather than glancing at it in December. When you reach 70–80% of the threshold, three options are open.

Reschedule the invoicing. If a large engagement would carry you over and performance spans the year boundary anyway, an invoice issued early in the new year opens a fresh threshold.

Prepare deliberately for VAT registration. It is not a catastrophe — for many it is the better position. Discuss registration and invoicing software configuration with your accountant before you need to.

Check what remains. Our VAT exemption calculator shows the remaining headroom and how many months it would take, at your current pace, to cross the threshold.

Who benefits from the exemption?

The decision turns on two questions: who you invoice, and how much VAT-bearing cost you carry.

The exemption typically favours those selling to private individuals or to customers who cannot deduct VAT (foundations, certain healthcare providers), with few VAT-bearing purchases. Most service providers fall here: trainers, consultants, coaches, hairdressers. Your customer pays the full price, so your price appears 27% lower than a VAT-registered competitor's.

VAT registration typically favours those invoicing VAT-registered companies — for whom VAT is a pass-through item they do not care about — or those with substantial VAT-bearing costs: equipment, subcontractors, rented offices. In those cases the right of deduction is real money.

A characteristic mistake: the new entrepreneur elects the exemption automatically because it is "simpler", and then discovers at the first significant equipment purchase that several hundred thousand forints of VAT have been absorbed.

What counts toward the threshold?

The threshold applies to revenue actually achieved in the calendar year — though the details vary by transaction type, and a correct assessment requires input from an accountant.

Not all revenue counts. Certain exempt transactions — the sale of some fixed assets, for instance — may fall outside the calculation. This area is full of exceptions, which is precisely why rules of thumb are unsafe: if you are near the limit, ask specifically.

Importantly, the threshold is independent of your income tax regime. The same HUF 20 million VAT limit applies to entrepreneurs on flat-rate taxation and to those using itemised cost accounting — while the flat-rate scheme has its own separate revenue cap. The two limits are frequently conflated.

Starting mid-year

If you start the business during the year, the threshold is applied pro rata. The HUF 20 million relates to a full calendar year; start in July and your effective limit is roughly half.

This trips up those who earn strongly in their first six months while budgeting against the full HUF 20 million. Crossing the pro-rated limit carries the same consequences: the crossing transaction is subject to VAT, and the exemption cannot be re-elected for the following year.

The election must be notified to NAV when the activity begins, or by the end of the tax year in respect of the following year. Miss the deadline and you begin the next year inside the VAT system.

You have crossed the threshold — what now?

Once the threshold has been crossed, the sequence is as follows.

First, issue the crossing invoice correctly. VAT must be charged on it. If you agreed a net price with the customer, VAT is added to the total; if you agreed a gross price, the VAT comes out of your own revenue. On a large engagement this difference is material, which is why contracts should state plainly whether the price is net or gross.

Second, register for VAT. The change must be notified to NAV. Do not delay: VAT liability arises by operation of law, not by your notification — failing to notify does not postpone the obligation, it merely adds a default penalty.

Third, reconfigure your invoicing software. You must switch from the exempt invoice format to a VAT-bearing one at the correct rate. Invoicing packages handle this, but the setting does not change itself.

Fourth, start collecting purchase invoices. The single real advantage of VAT registration is the right of deduction. It applies from the first month, but only on proper invoices issued in your name. Purchase documents you previously ignored are now worth money.

A closing point of perspective: VAT registration is not a punishment. For many businesses, operating within the VAT system is the natural state, and the exemption was only a simplification for the early, low-revenue period.

Frequently asked questions