Here is the rewritten article in Markdown format:
Compliance Audits for Financial Institutions in Hungary: What You Need to Know
The Hungarian Tax Authority conducts two types of audits, with significant differences between them. Understanding these differences can help financial institutions in Hungary navigate the audit process more effectively.
Tax Audit vs Compliance Audit: Key Differences
A Tax Audit
A tax audit is a procedure where the Tax Authority examines a company’s books for a specific period, usually 3-4 months, to identify any discrepancies or irregularities. The focus of this type of audit is on ensuring that the company has paid all its taxes correctly and on time. If mistakes are found, fines can be imposed, and the period cannot be audited again.
A Compliance Audit
On the other hand, a compliance audit focuses on a company’s adherence to tax laws and regulations. This type of audit usually takes place for an open period, giving companies the opportunity to correct any mistakes found during the audit. Fines related to data correction are typically smaller than those imposed in tax audits.
Tax Audits: Rarer Than Compliance Audits
In 2021, the Tax Authority conducted only around 10,000 tax audits, compared to approximately 140,000 compliance audits. This suggests that tax audits are less common and may be more targeted towards specific sectors or companies with a history of non-compliance.
What to Expect During a Tax Audit
Tax audits can affect corporations, small, and medium-sized companies in Hungary. The audit process usually takes around 3-4 months, during which the company may be asked to provide additional documentation or answer questions about its operations. Additional work required for the audit is typically covered by the company’s monthly accounting fee.
Possible Reasons for a Tax Audit
The Tax Authority may conduct an audit if it suspects that a company has been operating at a loss for an extended period, engaging in risky activities such as chain transactions, or failing to submit tax returns on time. Certain sectors, including:
- IT hardware sales
- Metal trading
- Web shops
- Foodstuffs
- Vehicle sales
- Construction companies
- Logistics services
may be more frequently targeted for audits.
Penalties for Tax Audit Findings
If the Tax Authority finds mistakes in a company’s books during an audit, it can impose fines ranging from HUF 1 million (approximately EUR 2,500) to HUF 5 million (approximately EUR 12,500), depending on the nature of the mistake. Fines may also be doubled if the company fails to correct the error.
Conditional Tax Penalty Allowance
Even if a company is fined for non-compliance, it can apply for a penalty allowance by paying only half of the fine and forfeiting its right to appeal against the decision. This option is available if the company pays all the taxes found to be missing or overdue.
For financial institutions in Hungary, navigating the audit process can be complex and time–consuming. However, with the right guidance and support, companies can minimize the risks associated with audits and ensure compliance with Hungarian tax laws and regulations.