REALWorld Law

What taxes (if any) are payable by the owner of real estate on a recurring basis and can these be reduced or offset in any way?

Either by direct acquisition of the real estate asset or indirect acquisition through a local company.

Last modified 10 Aug 2022

What taxes (if any) are payable by the owner of real estate on a recurring basis and can these be reduced or offset in any way?

The acquisition of real estate in Hungary as part of a purchase, exchange or similar transaction is normally subject to real estate transfer tax, payable at 4% of the market value. A reduced rate of 2% applies to the value above HUF1 billion. Nevertheless, the transfer tax payable cannot exceed HUF200 million per real estate. The tax authority will normally accept the consideration stated in the transfer agreement as the market value unless it is obviously too low.

The main exceptions to the general transfer tax rate are:

• a 2% rate applies to the purchase of property by Hungarian real estate funds;
  
  
• a 2% or 3% rate applies to the purchase of property by certain property dealers and finance lease providers (providing the property is sold/leased within two years); and
  
  
• a 2% rate applies if the property is purchased by a REIT (real estate investment company) or one of its wholly owned special purpose vehicles.

The acquisition of 75% or more of the shares (including shares held by close relatives, related parties, etc) in a company holding Hungarian real property is subject to transfer tax provided that the balance sheet value of the company's Hungarian real property (or properties) exceeds 75% of the company's total balance sheet value (subject to certain adjustments). In such cases the general tax rate, ie 4% applies. Nevertheless:

• a reduced rate of 2% applies to the value above HUF1 billion, and the transfer tax payable cannot exceed HUF200 million per real estate asset, and
• if the acquirer is a REIT (real estate investment company), a reduced 2% rate applies (regardless of value)

The definition of a company holding Hungarian real property also includes companies which themselves are not owners of real property, but have, directly or indirectly, an equity interest of at least 75% in another company (other companies) owning Hungarian real property. If no adjustment applies as prescribed by the Duties Act, the tax base is the market value of the real property (or properties) owned by the acquired entity (or entities) in proportion to the shares held by the acquirer.

The transfer tax is paid by the buyer.

Last modified 10 Aug 2022

What taxes (if any) are payable by the owner of real estate on a recurring basis and can these be reduced or offset in any way?

As a general rule, the transfer of real estate is exempt from VAT, unless the seller opts to charge VAT at the rate of 27%. The seller may choose to apply VAT to the sale of real property other than residential properties. If the transfer is subject to VAT, then the reverse charging mechanism applies and the buyer is liable for the VAT.

The transfer of new buildings and building plots is always subject to VAT, and the seller is liable for the VAT at the rate of 27% or 5% (ie no reverse charging applies). The lower rate (5%) applies to new residential buildings and apartments having a usable floor area not exceeding 300 sqm and 150 sqm, respectively or certain residential properties constructed within brownfield development projects implemented on  specifically designated areas. The VAT payable on the completion of a purchase of real estate may be reclaimed in accordance with the provisions of the VAT Act.

Last modified 10 Aug 2022

What taxes (if any) are payable by the owner of real estate on a recurring basis and can these be reduced or offset in any way?

A service fee is payable to the land registry office. Legal and notarial fees may also be incurred. Such additional costs are usually borne by the buyer unless otherwise agreed.

Any costs incurred in connection with the discharge of existing encumbrances are paid by the seller.
 

Last modified 10 Aug 2022

What taxes (if any) are payable by the owner of real estate on a recurring basis and can these be reduced or offset in any way?

Generally, real estate can be rented or sold to generate income.

Last modified 10 Aug 2022

What taxes (if any) are payable by the owner of real estate on a recurring basis and can these be reduced or offset in any way?

Income generated by a Hungarian company or by a limited or unlimited partnership from letting real estate is, in general, subject to tax at a rate of 9%. Corporate taxpayers are also subject to the local business tax of up to 2%, which is based on the net sales revenues after tax deductions (costs of goods sold, value of mediated services, sums paid to subcontractors, material costs, R&D costs) and adjustments have been made.

Real estate investment funds, however, are not subject to direct taxation. In general, the letting of Hungarian real estate by a non-resident company creates a permanent establishment in Hungary. Income generated by a permanent establishment is also subject to tax at the general rate of 9%. Local business tax at a rate of up to 2% also applies.

REITs and their wholly owned special purpose vehicles are, as a rule, exempt from corporate income tax and local business tax.

Last modified 10 Aug 2022

What taxes (if any) are payable by the owner of real estate on a recurring basis and can these be reduced or offset in any way?

Dividends paid to shareholders who are not private individuals are not subject to withholding tax.

Dividends paid to non-resident private individuals are taxed according to the rate applicable under the relevant double taxation treaty. If no double taxation treaty applies, withholding tax is payable at the rate of 15%.

Dividends distributed to Hungarian business entities are exempt from tax at source and in the hands of the shareholders.

Last modified 10 Aug 2022

What taxes (if any) are payable by the owner of real estate on a recurring basis and can these be reduced or offset in any way?

No.

Last modified 10 Aug 2022

What taxes (if any) are payable by the owner of real estate on a recurring basis and can these be reduced or offset in any way?

No.

Last modified 10 Aug 2022

What taxes (if any) are payable by the owner of real estate on a recurring basis and can these be reduced or offset in any way?

Capital gains from the sale of real estate by a Hungarian company, limited partnership or unlimited partnership are subject to tax at a rate of 9%. In certain circumstances, local business tax (at a rate of up to 2%) may also apply.

Capital gains from the sale of real estate by a non-resident investor are also subject to tax at the general rate of 9% if the income is attributable to a permanent establishment in Hungary. In certain circumstances, local business tax (at a rate of up to 2%) may also apply if there is a permanent establishment for tax purposes.

Real estate investment funds are not subject to direct taxation in Hungary.

REITs and their wholly owned special purpose vehicles are, as a rule, exempt from corporate income tax and local business tax.

As from 1 January 2010, the Corporate Income Tax Act introduced non-resident taxation in respect of real estate companies. The term ‘real estate company’ refers to a business entity (and its related parties owning Hungarian real estate), other than a company listed on a regulated market, whose assets include Hungarian real estate with a fair market value exceeding 75% of the total assets (on a consolidated basis).

Also, for a company to qualify as a real estate company, at least one of the owners (including the owners of the company’s related parties if such related parties own Hungarian real estate and are subject to the Corporate Income Tax Act in Hungary) must be tax resident in a country which does not have a double taxation convention with Hungary or, if it does, the convention allows the taxation of capital gains in Hungary.

Taxpayers are obliged to report to the tax authorities if they qualify as (or no longer qualify as) a real estate company.

A foreign tax resident company is subject to a 9% tax in Hungary if it realizes a gain on transferring its shares in, or reducing the capital of, a real estate company.

Last modified 10 Aug 2022

What taxes (if any) are payable by the owner of real estate on a recurring basis and can these be reduced or offset in any way?

A service fee is payable to the land registry office. Legal and notarial fees may also be incurred. These additional costs are usually paid by the buyer unless agreed otherwise.

Any costs incurred in connection with the discharge of existing encumbrances are met by the seller.

Last modified 10 Aug 2022