Tax audit and compliance audit in Hungary: what is the difference?

An audit is a procedure where the books of your Hungarian company are closely examined to reveal possible mistakes. Beside voluntary audits done by independent contractors, the Tax Authority can also conduct audits, so make sure your books are in order.

Two main types of audits by the Tax Authority

In Hungary, the Tax Authority conducts two main types of audits. One is referred to as a tax audit (“adóellenőrzés”), and it is similar to audits you get in other countries. You have to submit all your relevant paperwork to the Tax Authority, and in the course of 3-4 months, its employees will comb through them to see if all is in order. If they find something amiss, you must pay a fine while also correcting the mistakes.

There is another type of audit, called a compliance audit (“jogkövetési vizsgálat”). Here the focus is on compliance, and if anything is found amiss, you get a chance to correct your mistake. This kind of audit is typical to Hungary.

In a nutshell: Tax audit vs. Compliance audit

The main difference between these two kinds of audits is that the tax audit refers to a closed accounting period (or creates a closed period), meaning that data for that period should be finalized and correct. A compliance audit is usually conducted for an open period (apart from some specific cases), meaning there is a chance to correct data.

In line with this, as a result of a tax audit, the tax authority may impose heavy fines if it turns out your company was tampering with their books. The result of the tax audit is also final, and the same period cannot be audited twice. In contrast, you should not expect heavy fines from a compliance audit, even if it finds mistakes: you can still correct them, and pay only small fines related to data correction. The relevant period can become the subject of a tax audit later, especially if the mistakes found are not corrected.

Tax audit	Compliance audit
on a closed period / creates a closed period	usually on open periods / does not close the period
same period cannot be audited again	can be followed up by a tax audit (especially if mistakes are not corrected)
might impose heavy fines	only smaller fines related to data correction
companies under liquidation might be audited too	n/a

In line with this, tax audits are much rarer than compliance audits. In 2021, the Tax Authority conducted only about 10,000 tax audits while they had about 140,000 compliance audits. (Based on the latest summary of NAV and its analysis.)

What to expect during a tax audit

In Hungary, tax audits mostly affect corporations, but sometimes small and medium-sized companies can get audited too. Such an audit is conducted by the Hungarian Tax Authority, and as a result it is free of charge. It might create some extra work for your Hungarian accountant, but that is normally covered by your monthly accountancy fee. The tax audit usually takes 3-4 months, during which your company might be asked to submit additional paperwork, or answer questions about the company’s operation.

Possible reasons for an audit include:

Operation with a loss for a prolonged time
Activity that is deemed risky (e.g. chain transactions)
Missing tax returns

Sectors where tax audits are more frequent include:

Selling IT hardware
Trading metal
Web shops
Selling foodstuff
Selling vehicles
Construction companies
Logistics (couriers)

Penalties if the tax audit finds something amiss

If the tax audit reveals mistakes in your books, you can expect fines depending on the nature of the mistakes. For example:

Unpaid taxes: up to 200% of the taxes unpaid. However, the maximum penalty applies only if it is proven that you actively falsified information to avoid paying taxes.
Transfer pricing documentation: as of 2023 up to HUF 5 million (ca. EUR 12,500) / document type, which may be doubled if you fail to correct the mistake.
Failure to report an employee: HUF 1 million (ca. EUR 2,500)
Failure to properly keep electronic invoices: up to HUF 1 million (ca. EUR 2,500) / invoice
Failure to properly issue or keep paper-based invoices: up to HUF 500,000 (ca. EUR 1,250) / invoice
Mistakes in accounting: up to HUF 500,000 (ca. EUR 1,250)

Conditional tax penalty allowance

Even if your Hungarian company is fined, you have an option for paying only half of the fine. If you forfeit your right to appeal against the decision and pay the taxes that were found to be missing or overdue, you can apply for a penalty allowance. In this case, you will have to pay only 50% of the penalty originally imposed.

Helpers Finance: your partner during an audit

You Hungarian company can be audited for any number of reasons, especially if it is active in a sector that is deemed risky. The audit conducted by the Hungarian Tax Authority can either be a full tax audit or a compliance audit, both of which are free of charge for your business. These audits are different from the voluntary audits you might need before taking a dividend from your Hungarian company (learn more about those here).

Any additional work required for the tax audit or the compliance audit is normally covered by your monthly accounting fee. Just make sure you keep an eye for messages from your accountant or the Tax Authority, and submit any additional information they request as soon as possible. If your accountancy is with Helpers Finance and you do your best to remain compliant with regulations during your operation, you can sit back and continue to focus on your business even during a tax audit.

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