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Quick overview of Hungarian Real Estate

RENTAL INCOME

Individuals

Introduction

Rental income of individuals is taxed as part of a taxpayer’s annual income.

Liability to tax

Rental income received by individuals is subject to personal income tax at the rate of 15%

Basis to tax

Rental income is calculated as (i) 90% of the rental revenues (costs do not have to be documented); or (ii) the actual difference between rental revenues and actually incurred qualifying costs (costs should be supported by sufficient documentation). In the latter case, particular rules may apply to the depreciation of fixed assets and costs of refurbishment and maintenance. Private individuals may exercise the above option in the personal income tax return. Individuals pursuing the rental activity as private entrepreneurs cannot exercise the above option.

Rental income calculated as above will be part of the individual’s consolidated income and taxed together with other income types falling within the consolidated individual income tax base. The applicable tax rate is 15%

Special regime may apply to the taxation of rental income from short-term rental activities (e.g. Airbnb)

Companies

Introduction

Rental income earned by companies is taxed as business income.

Liability to tax

Rental income earned by companies is subject to corporate income tax as business income

Basis to tax

Business income is subject to Hungarian corporate income tax at the rate of 9%.

CAPITAL GAINS

Individuals

Introduction

Real estate capital gains realised by individuals are subject to personal income tax

Liability to tax

Real estate capital gains realised by individuals are taxed separately from consolidated income and are subject to a flat rate of 15%.

Basis of tax

The difference between the sales price and the allowable, documented acquisition costs, including certain qualifying maintenance costs will be the basis of the individual income tax. The tax base should be reduced by a percent in every year counting from the year of the acquisition. Real estate should be held for 5 years to be exempt from personal income tax.

Companies

Introduction

Real estate capital gains realised by companies are taxed as business income.

Liability to tax

Real estate capital gains realised by companies are subject to corporate income tax at the rate of 9%.

Basis of tax

Business income including all capital gains is subject to Hungarian corporate income tax at the rate of 9%.

HUNGARIAN VAT & TRANSFER TAXES

TaxpayerBasis of taxTax leviedTax rates (2020)
Resident individual

Rental income

Transfer of real estate

Value Added Tax

Value Added Tax

0%/ 5%/ 27%

N/A* / 2/4%

Non-resident individual

Rental income

Transfer of real estate

Value Added Tax

Value Added Tax

0%/ 5%/ 27%

N/A* / 2/4%

Resident company

Rental income

Transfer of real estate

Value Added Tax

Value Added Tax

0%/ 5%/ 27%

0%/ 27% / 2/4%

Non-Resident company

Rental income

Transfer of real estate

Value Added Tax

Value Added Tax

0%/ 5%/ 27%

0%/ 27% / 2/4%

*Unless four or more sales of real estate take place within 2 years.

VALUE ADDED TAX

Individuals

Introduction

Value added tax is a tax based on the increase in the value of a product or service at each stage of the supply chain.

Liability to tax

Rental activity is subject to Hungarian VAT if the rented real estate is located in Hungary. In certain conditions, private individuals may pursue long-term rental activity without registering with the Hungarian Tax Authority for VAT purposes. Short-term rental activity is subject to VAT at the rate of 5%, starting from 2020, however, a 4% tourism development contribution has also been introduced from 2020 (in this latter case, the exemption could apply in 2021 in certain cases with respect to COVID related government measures).

The transfer of real estate is in principle exempt from VAT, except from certain exceptions (e.g. real estate before the first occupation, or within 2 years from the first occupation). Persons who are registered for VAT purposes have the right, however, subject to the prior notification to the Hungarian Tax Authority, to opt for VAT taxation (with the right of VAT deduction). In such cases, generally, 27% rate would apply to the sale, which can be declared under the domestic reverse charge mechanism, provided that both parties of the transaction are registered for VAT purposes. However, as of 2021, a reduced VAT rate of 5% can be applied in the case of the sale of a newly built residential real estate if certain criteria are met.

Basis of tax

As a general rule, rental activity related to long-term rents is exempt from VAT (with no right to VAT deduction). The taxable person has the right, subject to the prior notification to the Hungarian Tax Authority, to opt for VAT taxation (with the right of VAT deduction). In such cases, generally, 27% rate would apply to long-term-rental activities. However, as of 2021, a reduced VAT rate of 5% can be applied in the case of newly built residential real estate if certain criteria are met.

Companies

Introduction

VAT is a tax based on the increase in the value of a product or service at each stage of the supply chain.

Liability to tax

Rental activity is subject to Hungarian VAT if the rented real estate is located in Hungary.

The transfer of real estate is in principle exempt from VAT, except from certain exceptions (e.g. real estate before first occupation, or within 2 years from the first occupation). Persons who are registered for VAT purposes have the right however, subject to the prior notification to the Hungarian Tax Authority, to opt for VAT taxation (with the right of VAT deduction). In such cases, generally 27% rate would apply to the sale, which can be declared under the domestic reverse charge mechanism, provided that both parties of the transaction are registered for VAT purposes. However, as of 2021 a reduced VAT rate of 5% can be applied in case of sale of a newly built residential real estate if certain criteria are met.

Basis of tax

As a general rule, rental activity related to long-term rents is exempt from VAT (with no right to VAT deduction). A company has the right, subject to the prior notification to the Hungarian Tax Authority, to opt for VAT taxation (with the right of VAT deduction). In such a case, a 27% rate would apply to long-term-rental activities. Short-term rental activity is subject to VAT at the rate of 5%, starting from 2020, however, a 4% tourism development contribution has also been introduced from 2020.

TRANSFER TAXES

Individuals

Introduction

Transfer tax is a tax on the passing of real estate from one person (private individual or legal entity) to another. Rights of immovable property can also qualify as real estate.

Liability to tax

Transfer tax is payable on the acquisition of Hungarian real estate and is payable by the purchaser. Transfer tax is also payable upon the acquisition of a qualifying interest in a so-called ‘real estate entity’. A company qualifies as a ‘real estate entity’ if it holds Hungarian real estate of a value of more than 75% of its balance sheet total or holds at least 75% direct or indirect shares in such a company.

Besides the above, transfer tax payable by the seller of a company holding real estate in an incorporated area has been introduced. 

Basis of tax

The market value of the real estate will be the tax base, no costs can be deducted from the market value. The general rate of the transfer tax is 4%, for the acquisition of real estate or shares of a real estate entity up to the value of 1 billion forints of the real estate, and 2% of the portion of the market value above 1 billion forints. The transfer tax in no case can exceed 200 million forints per real estate.

Exemptions

Various exemptions may be available, e.g. for transfers between related parties, for mergers, but detailed conditions apply.

Companies

The same rules as for individuals apply.

HUNGARIAN LOCAL TAXES

TaxpayerBasis of taxTax leviedTax rates*
Resident individual

plot, building

business activity

land tax, building tax

local business tax

3%, 3.6%

2% , (1%)**

Non-resident individual

plot, building

business activity

land tax, building tax

local business tax

3%, 3.6%

2% , (1%)**

Resident company

plot, building

business activity

land tax, building tax

local business tax

3%, 3.6%

2% , (1%)**

Non-Resident company

plot, building

business activity

land tax, building tax

local business tax

3%, 3.6%

2% , (1%)**

*Applicable rate may vary based on the respective municipality.
** Local business tax rate is capped at 1% as of 2021 but only applicable to SMEs if certain conditions are met.

Introduction

Municipalities have the right to levy annual local land tax and local building tax on Hungarian real estate.

Municipalities generally levy a local business tax on companies’ business revenues derived from real estate. The local business tax base is calculated from the annual net sales revenues of the company (including real estate revenues),which could be decreased with certain tax base adjustment items such as cost of goods sold, mediated services, subcontractor charges, R&D expenses and raw materials. The local business tax is payable to the municipalities where the business activity is carried out or where the official seat or permanent establishment(s) are located, i.e. any permanent or temporary business activity performed at the area of jurisdiction of the given municipality falls under the local business tax obligation. If the business activity is linked to various municipalities (e.g. a company has real estate in the territory of various municipalities),the local business tax base should be divided between the various municipalities, in accordance with the allocation rules of the relevant laws. The maximum tax rate is 2% of the tax base, actual rate applied is depending on the local municipalities. Local business tax rate is capped at 1% as of 2021, but only applicable to SMEs if certain conditions are met.

Municipalities could also levy tourist tax on short-term rental activity.

Liability to tax

As a general rule, the owner of the real estate, as registered on the first day of the relevant calendar day, could be subject to local land tax or local building tax.

Operating businesses having their registered seat or permanent establishment in the territory of the local municipality are subject to local business tax.

Basis of tax

The maximum rate of the local land tax is the 3% of the fair market value of the real estate, or 200 forints per square meter. The maximum rate of the local building tax is 3.6% of the fair market value of the real estate, or 1,100 forints per square meter. The applied method for the tax base calculation depends on the local municipalities. On certain cases, exemptions may apply.

Companies generating revenues from real estate could be subject to local business tax up to 2% of the annual net sales revenue (net sales revenue refers to revenues from all activities, including real estate revenues). The applicable local business tax rate may vary depending on the municipality. Local business tax rate is capped at 1% as of 2021, but only applicable to SMEs if certain conditions are met. Cost of goods sold, mediated services, subcontractor charges, R&D expenses and raw materials are generally deductible (subject to certain restrictions) from the tax base.

Short-term rental activity could be subject to tourist tax. The maximum rate of the tourist tax is the 4% of the accommodation fee, or 300 forints per night. The applied method for the tax base calculation depends on the local municipalities. On certain cases, exemptions may apply.

HUNGARIAN NET WEALTH/WORTH TAXES

There is no net wealth/worth tax for individuals or companies owning real estate in Hungary.

Vehicles for Hungarian real estate

Commonly used vehicles for Hungarian real estate

Corporate entity

Limited liability company (called: ‘korlátolt felelősségű társaság’, or ‘kft.’) is the most frequently used vehicle to hold Hungarian real estate. The equity is divided into shares, and members are not liable for the liabilities of the company. Limited liability companies are generally subject to corporate income tax on their business income at the rate of 9%. Companies holding shares in a limited liability company are subject to corporate income tax at 9% on business income, but dividends received by a corporate shareholder would not be included in the taxable base (unless qualifying as CFC). Private individuals holding shares in a limited liability company are subject to 15% personal income tax on dividends received and on potential capital gains realised from the shares, plus 17.5 % social tax would be payable as long as certain incomes earned through the tax year do not reach 24 times of the Hungarian minimum wage.    

Companies limited by shares (called: ‘részvénytársaság’, or ‘rt.’) are also used to hold real estate. Shareholders shall not bear liability for the obligations of the company. The company limited by shares that shares are not listed on the stock exchange qualifies as a private limited company (Zrt.) while the company limited by shares whose shares are listed on the stock exchange qualifies as a public limited company (Nyrt.). Companies limited by shares are generally subject to corporate income tax on their business income at the rate of 9%. Companies holding shares in a company limited by shares would be subject to corporate income tax at 9% on business income, but dividends received by a corporate shareholder would not be included in the taxable base (unless qualifying as CFC). Private individuals holding shares in a company limited by shares are subject to 15% personal income tax on dividends received, and on potential capital gains realised from the shares, plus 17.5 % social tax would be payable as long as certain incomes earned through the tax year do not reach 24 times of the Hungarian minimum wage.

There are other forms of corporate entities which may be available in Hungary.

Transparent vehicles

Transparent entities are not available in Hungary.

Trusts, private foundations

Trusts and private foundations (this latter introduced into Hungarian legislation in 2019) are legally recognised instruments under Hungarian law and can be established based on a trust or foundation deed. The purpose of these entities is estate management. The transferor of a real estate to these entities is exempt from transfer tax. The revenues derived in connection to the real estate are taxable as business income at the level of the trust, or foundation and subject to 9% corporate income tax. Transfer of real estate from the trust or foundation to the beneficiary could be subject to transfer tax. 

Foreign partnership

The tax residence of a partnership is determined by the place where the business decisions are made. The Hungarian company law or tax law does not include the possibility of setting up transparent entities, however, from a Hungarian tax perspective, the Hungarian tax law follows the foreign tax treatment and looks trough foreign transparent entities, and establishes the tax liability based on tax residency of the individual partners (e.g. if it is allowed by the applicable tax treaty concluded for the avoidance of double taxation, the capital gains deriving from the alienation of shares in a Hungarian real estate company, would be taxed at the level of the partners of a tax transparent foreign partnership).

In case a foreign partnership owns a real estate in Hungary, the Hungarian permanent establishment of the partnership is subject to Hungarian corporate income tax and local taxes. 

SPECIFIC REAL ESTATE VEHICLES FOR HUNGARIAN REAL ESTATE

Real estate investment trusts

Real estate investment trusts (REITs) in Hungary must be established in the form of a public limited company having a minimum initial capital of 5 billion forints. REITs may only be engaged in the following activities: (i) sale and purchase of own real estate, (ii) lease and operation of own real estate, (iii) real estate management and asset management and, (iv) from 2017, the operation of buildings and structures. A REIT may not have any equity participation in any business association other than project companies, other regulated real estate investment companies and business associations whose core activity is the organisation of construction projects.

A REIT must have at least 25% of the shares compared to the total face value of the total registered capital, the holders of which may not own (directly or indirectly) more than 5% of the total face value of the total registered capital each. A part of the shares of the company (equivalent to 25% free float) must be introduced to the stock exchange. However, in a REIT, which floats all its shares on the regulated market the 5% limit cannot be applied. In the case of such companies, the free float requirement must be checked only at the time of registration.

A REIT must pay out a dividend, equivalent at least to the expected dividend within 15 trading days following the approval of the financial statements. If the disposable funds are lower than the expected dividend amount, then at least 90% of the disposable funds must be paid out to the investors.

REITs (and their SPVs),are subject to a favourable tax regime. Among others, a reduced flat transfer tax rate of 2% applies on direct acquisition of any real properties or shares in a ‘real estate entity’. Furthermore, no corporate income tax liability arises (unless failing to meet the arm’s length principle in related party transactions). In addition, no local business tax liability applies on business revenues.

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Helga Kiss, tax director, RSM Hungary

Helga Kiss

Director, Tax services

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