Quick overview of Hungarian Real Estate Taxation

1. Why Hungary?

1.1. Smooth business starting within days

Should a foreign investor decide to establish a Hungarian subsidiary (either a holding or an SPV) for its Hungarian real estate businesses, Hungary has one of the easiest company formation processes within the EU. The Hungarian Government provides a quick electronic company registration process and via an electronic system remote company formation is also possible without actual travelling to Hungary. Besides, there are various forms of presence in form of which one may conduct business activity in Hungary, such as permanent establishment, branch, or subsidiary. In practice, it means that a company can start operating within a week from the decision of its establishment.

1.2. Lowest corporate income tax rate within the EU and no withholding tax between corporations

In Hungary, the corporate income tax rate is 9%, which is the lowest within the EU. The effective tax rate however may be further reduced if applying certain tax allowances and tax credits, which makes Hungary one of the most favorable target countries from a corporate tax point of view. Hungary is quite unique as it does not levy withholding tax in B2B relations. It means that no Hungarian withholding tax applies on dividends, interest or royalties paid to foreign corporate taxpayers (any withholding tax in B2C relations or in transactions carried out by foreign look-trough entities are to be determined on a case-by-case basis).

1.3. Harmonized tax rules

The Hungarian tax regime is well harmonized with the international and EU tax rules. Not only the Hungarian VAT system is based on the EU VAT Directive, but Hungarian transfer pricing rules and several corporate taxation rules are also based on international regulations, e.g. the interest deductibility rules as well as the taxation of certain preferential transactions (preferential merger, transfer of assets and exchange of shares). Besides, Hungary has almost 100 effective double tax treaties as well as 20 effective social security conventions.

1.4. Several tax reliefs, incentive schemes

The calculated corporate income tax (CIT) obligation may be reduced by different tax credits (if applicable as per the state aid and tax regulations which must always be reviewed in details). The so-called R&D tax credit could be claimed up to 100% of the calculated corporate income tax obligation, which in practice means that in case of significant R&D projects companies may reduce their corporate income tax obligation to zero. Furthermore, after the 3-year period the remaining, unused R&D tax credit amount could be reclaimed in cash. The development tax credit may be applied up to 80% of the calculated corporate income tax obligation reduced with the R&D tax credit, while all the other tax credits may be applied up to 70% of the remaining corporate income tax obligation. The final corporate income tax payment obligation may further be decreased via corporate income tax offering. In case a company offers a part of its final corporate income tax amount, further tax credit may be claimed up to an effective 2.16% of the corporate income tax offering.

2. Income taxes

2.1. Rental income

Individuals

The rental income of individuals is taxed as part of a taxpayer’s annual income. Rental income received by individuals upon the rent of a Hungarian real estate is subject to personal income tax.

Rental income is calculated as (i) 90% of the rental revenues (in this case costs do not have to be documented); or (ii) the actual difference between rental revenues and incurred qualifying costs (however, 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 their personal income tax return, however, 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%.

Please note that if a company (qualifies as disburser (payroll agent) under relevant Hungarian legislation) rents a real estate property from a private individual, the lessee company is required to declare and withhold the individual’s tax liability related to its renting activity.

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

Companies

Rental income earned by companies is taxed as part of the business income and subject to corporate income tax. Similarly, rental costs are deductible expenses for corporate income tax purposes, if incurred by the lessee in connection with its business activity.

In general, the costs and expenses related to the operation of the real estate property are deductible items for corporate income tax purposes. However, the depreciation recognized in accordance with the Hungarian Act on Accounting is not a deductible cost, but the amount of depreciation of real estate calculated at the rates dictated by the Hungarian Act on Corporate Income Tax is deductible in the corporate income tax base. As per the Act on Corporate Income Tax, the CIT depreciation rates are the following regarding real estate (not exhaustive list):

• Long-life structure buildings: 2% (in certain cases of accommodation service providers 3%)
• Buildings out on lease: 5%
• Investment projects carried out on outside (leased) real property: 6%

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

Please note that related party transactions should be carried out at arm’s length prices, and annual TP documentation should be prepared on intra-group transactions (if the amount of the transaction exceeds the level of the documentation requirement).

2.2. Sale of real estate

Individuals

Capital gains realized by individuals upon the sale of real estate are subject to personal income tax.

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

The difference between the sales price and the deductible, documented acquisition costs, including certain qualifying maintenance costs will be the basis of the individual’s personal income tax. The tax base should be reduced by a given percent defined in the Personal Income Tax Act in every year counting from the year of the acquisition. In case the real estate is sold after 5 years counting from the acquisition date, personal income tax obligation does not arise.

However, the above beneficial rules (e.g. tax exemption after 5 year period) only apply to real estate of personal usage. Should any private individual perform real estate trading activity, the capital gains must be taxable according to the taxation rules of business activities.

Companies

Capital gains realised by companies upon the sale of real estate are taxed as business income which is subject to corporate income tax at the rate of 9%.

As regards the deductibility of costs and expenses, the rules are the same as for the activity of rental of real estate property.

3. Value Added Tax

In terms of real-estate related transactions, it needs to be assessed whether the supplier is a taxable person carrying out an economic activity or whether they act as a non-taxable person. In addition, we can differentiate between rental of real-estate, sale of real-estate, and provision of accommodation.

Rental and sale of real-estate can be carried out as a non-taxable person, and as a taxable person, as well. The latter case takes place if the sale or rental of real estate activity meets the conditions of an economic activity from a VAT perspective. Economic activity is generally carried out frequently or in the long term, with a business perspective, and with the goal of receiving consideration. If the real estate is rented for consideration, the criteria of ‘economic activity’ is generally met; therefore, in practice the rental of real estate creates a taxable person status for the lessor. We note that in the case of the sale of real estate, a private individual can become a taxable person if they sell multiple real-estates within a specific timeframe set by the Hungarian VAT Law.

Provision of accommodation is an economic activity and can only be carried out as a taxable person. (E.g.: if a private individual lets out their home on an ad-hoc basis, it is not likely that such short-term rental would result in the private individual becoming a taxable person. However, all circumstances need to be checked in each individual case.)

3.1. Rental of real-estate

As the rental of real-estate qualifies as an economic activity, the supplier will act as a taxable person. The rental of real-estate is exempt from VAT as per the general rule without the right of VAT deduction. However, the taxable person has the right - subject to the prior notification to the Hungarian Tax Authority, - to opt for taxation (with the right of VAT deduction). In that case, the rent of real-estate will be subject to 27% Hungarian VAT to be charged by the supplier (this VAT can be deducted by the lessee as per the general VAT deductibility rules).

3.2. Sale of real-estate

If the sale of real-estate does not qualify as an economic activity (e.g.: it is a one-off sale), the supplier will act as a non-taxable person. The sale of real-estate is exempt from VAT as per the general rule. If the supplier acts as a non-taxable person, no VAT needs to be charged and no invoice issuing obligation arises.

If the sale of real-estate qualifies as an economic activity, the supplier will act as a taxable person. The sale of real-estate is exempt from VAT (except for newly built properties, and construction/building plots) as per the general rule without the right of VAT deduction. However, the taxable person has the right - subject to the prior notification to the Hungarian Tax Authority - to opt for taxation (with the right of VAT deduction). In that case, the sale of real-estate will be subject to 27% Hungarian VAT to be charged by the supplier. A domestic reverse charge may apply if both the seller and customer are VAT registered in Hungary and none has a status where their tax payment obligation cannot be fulfilled). We note that in the case of real-estates that qualify as “newly built”, 5% VAT may apply to the sale, if specific additional conditions are fulfilled.

3.3. Provision of accommodation

The provision of accommodation (generally short-term rental of holiday homes/flats, Airbnb services, or hotel accommodation) is an economic activity carried out by a taxable person. A 5% VAT rate is applicable for the transaction. Also, a 4% tourism contribution is due in case of the provision of accommodation (this contribution was suspended due to COVID, however, From 1 April 2023, tourism contribution is due again).

4. Transfer Taxes

Transfer tax obligation arises on the alienation of real estate from one person (private individual or legal entity) to another. Rights connected to immovable properties may also be subject to transfer tax.

Transfer tax has to be paid upon the acquisition of a Hungarian real estate, the tax has to be paid by the purchaser. In addition, transfer tax is also payable upon the direct or indirect acquisition of a qualifying interest (at least 75% of the shares) in a so-called ‘domestic real estate holding company’. A company qualifies as a ‘domestic real estate holding company’ if more than 75% of its total assets (excluding cash, claims, loans and accruals) are real estate property located in Hungary at the time of the transaction.

As a general rule, the tax base is the market value of the real estate, 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 domestic real estate holding company 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. A special reduced rate of 2% may apply to REITs, if the real estate is resold within two years of the acquisition. However, several further conditions have to be considered to apply the reduced rate.

Various exemptions may be available, e.g. not only in case the real estate is sold between relatives in the direct line or related parties, among spouses, or upon the termination of the marital community, but for preferential transactions (e.g. mergers) as well. The transfer tax exemptions have several detailed conditions which must be further analysed in the given case.

Besides the above, a special 90% transfer tax is payable by the seller in case of profitable direct or indirect sale of a real estate qualifying as “reclassified to inland area” (in case such reclassification happened after 31 January 2020).

5. Hungarian Local taxes

5.1. Land tax and building tax

Municipalities have the right to levy annual local land tax and local building tax on Hungarian real estate. As a general rule, the owner of the real estate, as registered on the first day of the relevant calendar year, could be subject to local land tax or local building tax.

The maximum rate of the local land tax for FY2025 is 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 for FY2025. However, the above-detailed tax rates may be corrected with the consumer price index (CPI) upon the decision of the given municipality. The applied method for the tax base calculation depends on the local municipalities. In certain cases, exemptions or temporary exemptions may apply.

5.2. Local business tax

Municipalities generally levy local business tax on companies’ business revenues derived from real estate related activity. The local business tax base is calculated from the annual net sales revenues of the company (including real estate related revenues), which could be decreased with certain tax base adjustment items such as material cost, cost of goods sold, mediated services, subcontractor charges, R&D expenses with especially bears importance in case of construction companies. 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 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 depends on the local municipalities.

5.3. Other local taxes on short-term rental activity

Municipalities could also levy tourist tax on short-term rental activity. 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. In certain cases, exemptions may apply.

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

*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.

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 case, 27% rate would apply to long-term-rental activities.

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.

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 case, 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 a 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 ‘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.

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

*Applicable rate may vary based on the respective municipality.

Introduction

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

Municipalities generally levy 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.

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 the 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. 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 Hungaian 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.