Acquiring Hungarian Real Estate

DIRECT PURCHASE OF REAL ESTATE

This section discusses the most important tax implications of the direct purchase of real estate. First of all, the impacts for resident individuals and non-resident individuals are discussed. Thereafter the impacts for resident companies and non-resident companies are discussed. 

Resident Individuals

Transfer Taxes

Individuals acquiring Hungarian real estate are subject to transfer 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.

Value added tax 

If the real estate is not purchased from another private individual, the sale of real estate may be subject to VAT if the real estate is sold (i) before the first occupation; or (ii) after the first occupation, but if less than 2 years has elapsed between the date of the occupancy permit and the date of sale. The applicable VAT rate is 27%. However, as of 2021 a reduced VAT rate of 5% can be applied in case of acquiring newly built residential real estates if certain criteria are met.

In any other cases, the sale of real estate is generally exempt from VAT, with no right to VAT deduction. The taxable person has 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 case, 27% (or 5% in case of newly built residential real estate with certain conditions) rate would apply to the sale. If the taxpayer opts for VAT taxation, it needs to retain that choice for 5 years.

Taxpayers having opted for VAT taxation may change their choice after 5 years. If opting back to the VAT exempt status, VAT payment obligation may arise for (part of the) previously deducted VAT. 

Non-resident individuals

Non-resident individuals are treated in the same way as resident individuals, provided that their real estate is located in Hungary.

Resident companies

Transfer Taxes

Companies acquiring Hungarian real estate are subject to transfer 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 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.

On certain conditions, exemption may apply from transfer tax (e.g. mergers, transfer between related party companies).

Value added tax 

If the real estate is not purchased from a private individual, the sale of real estate may be subject to VAT if the real estate is sold (i) before the first occupation; or (ii) after the first occupation, but if less than 2 years has elapsed between the date of the occupancy permit and the date of sale. The applicable VAT rate is 27%. However, as of 2021 a reduced VAT rate of 5% can be applied in case of the sale of newly built residential real estates if certain criteria are met.

Taxpayers having opted for VAT taxation may change their choice after 5 years. If opting back to the VAT exempt status, VAT payment obligation may arise for (part of the) previously deducted VAT. 

In any other cases, the sale of real estate is generally exempt from VAT, with no right to VAT deduction. The taxable person has 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 case, 27% (or 5% in case of newly built residential real estate with certain conditions) rate would apply to the sale, however, VAT registered taxpayers may apply the domestic reverse charge mechanism. If the taxpayer opts for VAT taxation, it needs to retain that choice for 5 years.

Non-resident companies

Non-resident companies are treated in the same way as resident companies, provided that their real estate is located in Hungary.

INDIRECT PURCHASE OF REAL ESTATE 

This paragraph discusses the most important tax implications of the indirect purchase, i.e. purchasing the shares of a real estate holding company. First of all is discussed the impact for resident individuals and non-resident individuals. Thereafter is discussed the impact for resident companies and non-resident companies.

Resident individuals

Transfer taxes

The indirect purchase of the real estate; i.e. purchasing shares in a local entity holding Hungarian real estate is subject to transfer tax, provided that 75% or more of the shares are acquired, and the entity qualifies as a ‘real estate entity’. Shareholding ratio shall be computed on a consolidated basis (related parties’ shareholding ratio must be observed). 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. The general rate of the transfer tax is 4%, for the acquisition of 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. 

Personal income tax

Individuals who hold shares in a Hungarian company mainly generate income in the form of dividends, that is subject to personal income tax in Hungary at the rate of 15%.

Dividend withholding tax

Dividends paid to individuals by a Hungarian company are subject to dividend withholding tax at the rate of 15% (i.e. the personal income tax of the individual is withheld by the distributing Hungarian company).

Non-resident individuals

Non-resident individuals are treated in the same way as resident individuals, provided that the real estate is located in Hungary. Hungary has more than 80 tax treaties concluded for the avoidance of double taxation in effect that determine where and how much dividend tax will be applicable. 

Resident companies

Transfer taxes

The indirect purchase of the real estate (i.e. purchasing the shares in a local entity holding the real estate) is also subject to transfer tax, provided that 75% or more of the shares are acquired, and the entity qualifies as a ‘real estate holding entity’. Shareholding ratio shall be computed on a consolidated basis (related parties’ shareholding ratio must be considered). A company qualifies as ‘real estate holding 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. The general rate of the transfer tax is 4%, for the acquisition of 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 may apply on certain cases.

Dividend withholding tax

There is no dividend tax in Hungary between corporations. 

Non-resident companies

Non-resident companies are treated in the same way as resident companies, provided that the real estate is located in Hungary.