Selling and transfering Hungarian Real Estate

This section discusses the most important tax implications of the direct and indirect sale of real estate.

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Helga Kiss, tax director, RSM Hungary

Helga Kiss

Director, Tax services

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DIRECT SALE OF REAL ESTATE 

Resident individual

Capital gains

Capital gains on the sale of real estate are subject to personal income tax at the rate of 15%. The difference between the sales price and the allowable, documented acquisition costs, including certain qualifying maintenance costs will be the basis of the personal income tax. The tax base should be reduced by 20 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.

VAT / transfer tax

Private individuals in general are not subject to VAT unless they carry out four or more real estate sale transaction within 2 years. 

In the case of the sale of a real estate, the purchaser would be subject to transfer tax.

Losses

Individuals could not make use of losses for personal income tax purposes, and no loss-carry-forward would be available.

Non-resident individual

Non-resident individuals are treated in the same way as resident individuals.

Resident company

Capital gains

Capital gains realised in connection with the sale of real estate are subject to corporate income tax as business income. Business income is taxed with a rate of 9%. The corporate income tax on capital gains is based on the difference between the net sales proceeds and the fiscal book value.

VAT/transfer taxes

The sale of real estate is generally 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 case, 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. 

In the case of the sale of a real estate, the purchaser would be subject to transfer tax.

Deferral of tax / reinvestment reserve

Not applicable in Hungry. 

Losses

The losses realised on the sale of the real estate may be offset against taxable income. Loss-carry forward is available, subject to certain limitations.

Non-resident company

Non-resident companies are treated in the same way as resident companies, as income generated from real estate located in Hungary is taxable in Hungary. The non-resident company is, therefore, limited taxable in Hungary based on the income generated in Hungary.

INDIRECT SALE 

Resident individuals

Capital gains 

Hungarian-source investment incomes are subject to income tax for tax residents at the flat-tax rate of 15 %. A social tax of 17.5 % is also payable on certain capital gains as long as certain incomes earned through the tax year do not reach 24 times of the Hungarian minimum wage. 

VAT/transfer Tax

The sale of shares in a Hungarian company is VAT exempt.

The indirect purchase of the real estate (i.e. purchasing the shares in a local entity holding the 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’. The purchaser is obliged to pay the transfer tax.

Non-resident individual

Non-resident individuals may be subject to Hungarian personal income tax at 15% on the capital gains deriving from the alienation of shares in a Hungarian real estate entity, if the applicable treaty concluded for the avoidance of double taxation provides the possibility.

Resident company

Capital gains

Capital gains are subject to corporate income tax as business income and taxed with the rate of 9%.

VAT/ transfer Tax

The sale of shares in a Hungarian company is VAT exempt.

The indirect purchase of the real estate (i.e. purchasing the shares in a local entity holding the 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’. The purchaser is obliged to pay the transfer tax.

Deferral of tax 

Not applicable

Losses

Losses arising on the sale of shares may be offset against business profits for corporate income tax purposes. Losses can be carried forward, upon certain conditions. 

Non-resident company

Capital gains derived by non-resident companies on the sale of shares in a Hungarian ‘real estate holding company’ is subject to corporate income tax in Hungary. A Hungarian company qualifies as a ‘real estate holding company’ if (i) more than 75% of its total assets (at book value) on a consolidated and/or stand-alone basis are real estate units located in Hungary and (ii) at least one of the shareholders is resident in a state with which Hungary has not concluded a double tax treaty, or in a state where the double tax treaty allows the gains being taxed in Hungary. The tax base is the difference between the sales revenue and the acquisition costs including the expenses related to the shares during the shareholding period. The applicable corporate income tax rate is 9%. Additional administrative requirements would also apply.

DIRECT TRANSFER INTRA CONCERN 

(HUNGARIAN REAL ESTATE TO HUNGARIAN COMPANY)

Resident Company

Capital gains 

Capital gains on the Hungarian real estate are subject to corporate income tax as business income and taxed with the rate of 9%.

VAT / Transfer tax

The sale of real estate is generally 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 case, 27% rate would apply to the sale.

The acquisition of a real estate is generally subject to transfer tax, which is payable by the acquiror. 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. Transfer between related parties could be exempt from transfer tax, and further exemptions may apply.

Deferral of tax 

Not applicable.

Fiscal unity

As of 2019, group taxation for corporate income tax purposes is available in Hungary. Business organisations qualifying as resident taxpayers, if linked on the basis of voting rights of at least 75%, and having the same balance sheet date, booking currency and rules of accounting, may form a tax group. In the case of a tax group, losses of a group member can be offset against profits of other group members. Group members will not be obliged to determine the arms-length price for corporate income tax purposes for transactions between group members, and to modify the tax base in case of a deviation therefrom, and to document intra-group transactions.

Non-resident company

Non-resident companies are treated in the same way as resident companies since Hungarian real estate will usually lead to a permanent establishment in Hungary. The Hungarian permanent establishment of a non-resident company can become a member to a Hungarian fiscal unity. 

INDIRECT TRANSFER INTRA CONCERN 

(HUNGARIAN REAL ESTATE TO HUNGARIAN COMPANY)

Resident company

Capital gains 

Capital gains on the sale of shares of a Hungarian company are subject to corporate income tax as business income and taxed with the rate of 9%.

Transfer tax

The acquisition of the shares in a real estate entity is subject to transfer tax, provided that 75% or more of the shares are acquired, and the entity qualifies as a ‘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. 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 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. Transfer between related parties could be exempt from transfer tax, and further exemptions may apply.

Deferral of tax

Not applicable.

Fiscal unity

As of 2019, group taxation for corporate income tax purposes is available in Hungary. Business organisations qualifying as resident taxpayers (including the Hungarian permanent establishment of a non-resident company),if linked on the basis of voting rights of at least 75%, and having the same balance sheet date, booking currency and rules of accounting, may form a tax group. In the case of a tax group, losses of a group member can be offset against profits of other group members. Group members will not be obliged to determine the arms-length price for corporate income tax purposes for transactions between group members, and to modify the tax base in case of a deviation therefrom, and to document intra-group transactions.

Non-resident company

Capital gains derived by non-resident companies on the sale of shares in a Hungarian ‘real estate holding company’ may be subject to corporate income tax in Hungary. A Hungarian company qualifies as a ‘real estate holding company’ if (i) more than 75% of its total assets (at book value) on a consolidated and/or stand-alone basis are real estate units located in Hungary and (ii) at least one of the shareholders is resident in a state with which Hungary has not concluded a double tax treaty, or in a state where the double tax treaty allows the gains being taxed in Hungary. The tax base is the difference between the sales revenue and the acquisition costs including the expenses related to the shares during the shareholding period. The applicable corporate income tax rate is 9%. Additional administrative requirements would also apply.  

DIRECT TRANSFER INTRA CONCERN 

(HUNGARIAN REAL ESTATE TO FOREIGN COMPANY)

Resident company

Capital gains

Capital gains on the transfer of a Hungarian real estate are subject to corporate income tax in Hungary and taxed with the rate of 9%, as business income.

VAT / Transfer tax

The sale of real estate is generally 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 case, 27% rate would apply to the sale. If the foreign company is registered for VAT purposes in Hungary, the domestic reverse charge mechanism may apply. 

The acquisition of a real estate is generally subject to transfer tax, which is payable by the acquiror. 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. Transfer between related parties could be exempt from transfer tax, and further exemptions may apply.

Deferral tax

Not applicable.

Losses

Losses arising on the sale of real estate may be offset against business profits. Losses can be carried forward, upon certain conditions. 

Fiscal unity 

Non-resident companies cannot become part of a fiscal unity for corporate income tax purposes. However, the Hungarian permanent establishment of a non-resident company could become part of a Hungarian fiscal unity.

Non-resident company

Non-resident companies are treated in the same way as resident companies, as income generated from immovable property is taxable in Hungary. The non-resident is, therefore, limited taxable in Hungary, based on the income generated in Hungary.

INDIRECT TRANSFER INTRA CONCERN 

(HUNGARIAN REAL ESTATE COMPANY TO FOREIGN COMPANY)

Resident company

Capital gains

Capital gains realised on the transfer of a participation in a Hungarian real estate entity would subject to corporate income tax in Hungary and taxed with the rate of 9%, as business income. However, a participation exemption may apply to capital gains from the sale of shares if the acquisition had been reported within 75 days after a one year holding period.  

VAT / Transfer tax

The sale of shares in a Hungarian company is VAT exempt.

The indirect sale of the real estate (i.e. selling the shares in a local entity holding the 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’. The purchaser is obliged to pay the transfer tax.

Deferral tax

Not applicable.

Losses

Losses arising on the sale of shares may be offset against business profits. Tax losses can be carried forward, upon certain conditions. 

Fiscal unity

Non-resident companies cannot become part of a fiscal unity for corporate income tax purposes. However, the Hungarian permanent establishment of a non-resident company could become part of a Hungarian fiscal unity.

Non-resident company

Capital gains derived by non-resident companies on the sale of shares in a Hungarian ‘real estate holding company’ may be subject to corporate income tax in Hungary. A Hungarian company qualifies as a ‘real estate holding company’ if (i) more than 75% of its total assets (at book value) on a consolidated and/or stand-alone basis are real estate units located in Hungary and (ii) at least one of the shareholders is resident in a state with which Hungary has not concluded a double tax treaty, or in a state where the double tax treaty allows the gains being taxed in Hungary. The tax base is the difference between the sales revenue and the acquisition costs including the expenses related to the shares during the shareholding period. The applicable corporate income tax rate is 9%. Additional administrative requirements would also apply. 

TRANSFER OF HUNGARIAN REAL ESTATE TO AN EU-COMPANY

If the transferor’s home jurisdiction is in the European Union, the liability to tax on the capital gains may be avoidable if the merger and acquisition provisions applies. Several detailed conditions apply which can be found in the Council Directive of 19 October.


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