The AAM Threshold: What Is Hungary's VAT Exemption Limit, and Why Does It Matter?

Many small business owners don't know exactly what AAM (alanyi adómentesség, the VAT exemption threshold) is, or why it's worth watching their revenue against this limit. Yet if you cross it, your administration — and in some cases your tax burden — changes immediately.

What Is AAM, and Who Does It Apply To?

AAM is a choice related to ÁFA (VAT), and it does not depend on your tax form itself (flat-rate tax, KATA (the flat-rate tax scheme for small businesses), VSZJA (personal income tax based on actual business profit)) — it depends on the size of your revenue. As long as your net revenue stays below a given threshold within a calendar year, you can choose not to charge VAT on your invoices, and you won't need to file VAT returns either.

In 2026, this threshold is HUF 20 million — it has been raised in several steps in recent years and was lower before (HUF 18 million in 2025), so if you're reading an older article or figure, check which year it refers to.

AAM comes up most often for sole traders on the flat-rate tax scheme, because they typically work with smaller revenues, and flat-rate tax combined with AAM gives the simplest possible administration. But in principle, a sole trader on VSZJA can also choose it, as long as revenue stays below the threshold.

Important: don't confuse this with other thresholds:

AAM (HUF 20 million) is about VAT exemption.
KATA's revenue cap (HUF 18 million) is a completely separate rule that only applies to those on KATA.
The flat-rate tax scheme's upper revenue limit (HUF 38,736,000 in 2026) is yet another figure — it determines whether you can even choose flat-rate tax as your tax form at all.

These three numbers are easy to mix up, but each answers a different question.

Why Does It Matter If You Cross the AAM Threshold?

1. You Immediately Become a VAT Payer

Not at the end of the month, not from the following year — from the very invoice that takes you over the threshold, you must start issuing VAT-inclusive invoices.

2. Your Administration Increases

As a VAT payer, you have to file quarterly (or in some cases monthly) VAT returns, and track the difference between VAT payable and VAT deductible.

3. You Have a Reporting Obligation

You must report crossing the threshold to NAV (the Hungarian Tax Authority) within 15 days, and your tax number will also change (its 9th digit).

4. You Can't Immediately Switch Back

Once you've crossed the threshold and become a VAT payer, you typically can't choose the VAT exemption again for a certain period (usually the following two years).

How Do You Notice You're Approaching the Threshold?

This usually happens mid-year. Many sole traders perform much better than planned from January to June, and only realize in the summer that they might cross HUF 20 million for the year. If you see this coming, you have time to prepare: rethink your pricing, inform returning clients, or deliberately opt into the VAT system before you're forced to.

A Simple Example

Imagine a software developer with a side business whose planned annual side income was HUF 4-5 million, but who's already at HUF 10 million by the end of June because of one large project. If the pace continues, they could easily cross the HUF 20 million threshold by November or December.

If they notice in time (from their own records or a tool that flags this), they have time to decide: scale back new work for the rest of the year, or deliberately opt into the VAT system and adjust their pricing and administration accordingly.

How Should You Handle It?

Track your revenue continuously, not just at year-end.
Plan ahead if it's already clear by mid-summer that you're approaching the threshold.
Ask a tax advisor if you're unsure — the specific impact of crossing the threshold (pricing, client type) depends on your situation.
Use a tool that shows your position relative to the threshold in real time, not one where you only find out after the fact.

That's why Penzum has an AAM tracker: based on your revenue data, it continuously shows where you stand relative to the HUF 20 million threshold, and warns you before you get critically close.

Want to know more about VAT exemption and the flat-rate tax scheme? You can find more detailed material, including tracking of the annual revenue limit, on the Penzum Help Center — Flat-Rate Tax page.