Both the previous and the new Hungarian Civil Codes specifically define so-called “debt recovery cost allowance” regarding business-to-business contracts. In accordance with the provisions of the new Hungarian Civil Code, such contracts may not exclude recovery cost allowance and may not set the allowance at an amount lower than the legal limit.

According to Paragraph (2) of Section 6:155. § of Hungarian Civil Code – Paragraph 301/A of the previous Civil Code – , a contractual party that is late in payment shall be obliged to pay 40 EUR in HUF to cover the other party’s collection costs. This amount is independent of the duration of default, the actual costs to the party and the amount of arrears owed.

In regards to tax and accounting issues related to debt recovery cost allowance, the Hungarian Tax Authority recently published the following information in issue 2014/76:

– obligor must record the still unpaid but due cost allowance in its accounting books as an expense;

– this rule applies not only if obligee enforces the cost allowance but also when the obligor defaults on a payment (“this is necessary not only if obligee de facto demands cost allowance from obligor, considering that by law the obligation to pay comes into existence by reason of the fact that obligor is in default”)

– only the effectively received cost allowance must be accounted for as miscellaneous income by the obligee

– although the parties may not agree to a cost allowance lower than the legal amount, Hungarian Civil Code does not forbid, according to the Hungarian Tax Authority, an obligee from later waiving, even implicitly – by way of not demanding the cost allowance – payment thereof;

– in such a case, obligor shall remove the cost allowance from its liabilities and recognize it as an extraordinary income;

– if the obligee does not account for cost allowances that remain unpaid, the waiver by obligee does not affect the books;

– the publication of NAV explicitly states that “donation tax or other stamp duty is not levied if obligee does not demand the claim for cost allowance (ceding or waiving cost allowance)”.

Questions about Hungarian debt recovery cost allowances or other issues concerning Hungarian law? Please contact Dr. Fruzsina Piroska Nagy: fruzsina.nagy (at) spechtboehm.hu