Property ownership costs
In Hungary, taxes on ownership of real estate are generally lower than in most Western countries. As an owner of Hungarian real estate you will have to bear the following ongoing costs:
- Annual municipality tax: Enterprises are liable to pay local business tax on all business performed in a municipality. Rates vary depending on the locality, and municipalities may choose not to levy the tax. The maximum rate is 2 percent. The tax base is the net sale revenue less some deductions (i.e. mediated services, material costs).
- Building Tax: The building tax may be imposed by the local government, payable by the property owner (a company or person) each year. The rates and the tax base vary from each locality/municipality, subject to:
- A maximum of HUF900 ($4) on a per-square-meter basis, or
- A maximum of 3 percent on the market value of the building
- Land Tax: This may be levied on idle land on the portion classified as a “downtown area” by the local government council. Note that local government may or may not levy such taxes, and also that the rates vary for each municipality. The council either levies the tax as:
- Per square meter of the plot at the maximum rate of HUF200/m² ($1.75/m²) or
- On the adjusted market value of the property, in which case the maximum tax rate is set at 3 percent. Adjusted market value is generally 50 percent of the market value of the property.
- Personal income tax: For non-resident individuals owning and renting out Hungarian property, there are two possible routes of taxation:
- Route 1: Rental income is taxed separately from other income. The 25 percent tax rate is levied on the gross rental income, without any cost deduction.
- Route 2: Taxable income is calculated by:
- Deducting expenses actually incurred and documented in the renting process such as lighting, maintenance, administrative costs, etc.
- Or by deducting a 10 percent notional deduction from the gross income (10 percent expense ratio) Corporate income tax Most lawyers advise foreign nationals to set up a company registered in Hungary in order to purchase property.
Hungarian companies are liable to corporate income taxation on profit, after deductions and adjustments at 16 percent (10 percent for income up to HUF5 million ($21,620) if certain conditions are met). In general, the depreciation rates of real estate vary between 2 percent and 5 percent.
Other property costs
- Utility costs: Tenants are normally required to pay for all utilities and common cost during the lease term, including cold and hot water, heating, gas and electricity fees.
- Lettings and management charges: Costs usually amount to between 5 percent-10 percent of rental income.
- Inheritance Tax: Hungarians and foreigners who inherit property in Hungary are liable to pay inheritance duty in proportion to the actual gain they incur. The amount varies between 2.5 percent and 21 percent and it depends on the taxable amount and the relationship between the parties.
Selling Property in Hungary
Individual Capital Gains Tax: Individuals are taxed at 25 percent on income from the sale of property in Hungary, unless a double tax treaty provides otherwise. So, if you bought a flat for HUF20 million ($86,470) and now sell it for HUF24 million ($103,800), you will have to pay a quarter of the HUF4 million ($17,300) profit to the tax authorities. The documented costs of acquiring and developing the property allowed by Hungarian law may be deducted on income from the sale. It may also be possible to deduct the costs of travel and service fees that are associated with the property as part of your global income. Consulting a tax advisor in the country where you pay taxes is advisable. Hungary has long-standing double taxation treaties with most countries making this situation fairly straightforward.
There is no annual amortization on the property and the level of tax payable starts to depreciate at 10 percent per year only from the sixth year of ownership onwards. Tax can be reclaimed on any income from a property sale used by the seller (or a close relative) to buy or to secure title to other residential properties within a limited period of time, but this is only really of relevance to buyers who are legally resident in Hungary.
Company Capital Gains Tax: In the case of property acquired by a company, the profit from the sale of the real estate is taxed at the current corporate tax rate of 16 percent. The company can deduct all expenses relating to its activity. The cost of any renovation work that increases the value of the property, stamp duty, and lawyers/agents fees can be used to reduce your tax base on income from rentals or profit from selling the property. Such work does not include maintenance costs—so just painting the place doesn’t count.
The maximum tax-deductible depreciation on industrial buildings and buildings with long useful lives is 2 percent, while rental properties can be depreciated at a preferential rate of 5 percent. When calculating book depreciation, it is important to ensure that it corresponds to the anticipated useful life of the property and to the company’s accounting policy. Under the Act on Corporation Tax, 20 percent withholding tax must be deducted from dividends paid abroad by Hungarian companies, unless paid to an EU resident parent company whose holding in the payer meets certain conditions, or a double taxation treaty provides otherwise.
Legal fees: 1 percent of the property price plus 20 percent local VAT (this might include the cost of applying for the permit at the land authority)
Claim up to $26,000 per W2 Employee
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- This is not a loan. These tax credits do not need to be repaid
Estate agent fee: This is usually paid by the buyer. Most sellers are reluctant to pay high brokerage fees.
Transfer duties: This is also paid by the buyer. If you are selling shares in a company, there is no liability for stamp duty. New income tax and VAT rules Personal income tax when selling residential property in Hungary is 25 percent. This tax amount can be lowered if the real estate being sold is named on the title deed (tulajdoni lap) as a residential house/dwelling (lakóház) or flat (laká).
- If you buy and sell a home or flat in the same year, you are liable for the full 25 percent VAT.
- If you sell in the 2nd year, you may pay 10 percent less (i.e. net 22.5 percent).
- In the 3rd year, 40 percent less (i.e. net 15 percent)
- In the 4th year, 70 percent less (i.e. net 7.5 percent)
- In the 5fth year and after, there is no VAT payment.
You can further lower your tax with invoices you kept from renovating the property. The invoices should have your (the owner’s) name on them.
Property acquisition discounts
Property acquisition discounts came to an end in January 2008, which means that using the money to purchase another house or flat does not remove your tax obligations. There is only one exception to this rule, which is buying living quarters for you or for a near relative in a nursing home.
The seller must comply with the legally stipulated notification requirements toward those having rights of pre-emption (i.e. first refusal to buy the property if it comes up for sale). Vendors must ensure that they possess relevant property ownership documents and and that they have paid any outstanding tax or utility bills on their property. The seller is obliged to sell the property free from defects and is liable for defects which reduce the value of the property or prevent the use of the property for a particular purpose. If the property lacks a particular characteristic which the vendor claimed it possessed, the vendor is liable.
Marketing your property
The normal means of marketing a property in Hungary is via an estate agent who can also value your property. If you used an agent to buy your Hungarian home, it could make sense to use the same one to sell it, as they will already know the property. Before you take on their services, you should check carefully what they will and will not do in terms of marketing and what they will charge as commission—make sure that you shop around to get the best service.
On the other hand, it is increasingly easy to sell without an agent. There are more and more specialist websites and magazines advertising property for sale in Hungary. The key advantage here is avoiding the estate agent’s fees. You will need to do your research to get the price right as just looking at the adverts will not be enough. You will need to get out and see comparable properties in your area and check out their facilities. Alternatively, you could try to sell your property at auction.
Signing a contract
Once all the necessary legal checks have been completed to the satisfaction of the buyer, you will be ready to sign a private sales contract. Before this stage you should have had the contract translated into English and ideally have English-speaking assistance on hand during the signing. The contract is prepared by the selling broker and signed at the office of the broker. The private contract details the finer points of exactly what you are selling, and includes all the fundamental information about the sale such as the purchase price (including how and when it should be paid), the list of fixtures and fittings included in the sale, and the completion date when the deeds will be signed and the property transferred into your name. This agreement commits both buyer and vendor to complete the transaction and at this point the buyer must pay a deposit which will be forfeited if the buyer walks away from the deal subsequently. However, if the vendor reneges on the deal at a later date, they are liable repay the buyer twice the value of the deposit in compensation.
Obtaining purchase permission
Once the deposit is paid, the buyer will seek permission to purchase from the relevant local authority. This process can take up to 90 days, so it is essential that you plan the sale carefully and factor this delay into the overall timeframe.
After the technical handover of your property the final payment is due by the buyer. At this stage your solicitor will take care of repaying any outstanding mortgage amount. The buyer is obligated to notify the seller immediately after receiving purchase permission from the Administration Office. Following notification, the buyer must also transfer the balance of the purchase price. Closing usually takes place within a week from receipt of the purchase permit. During the process, the seller and the buyer will sign the closing statement, which is a declaration that the purchase price is paid in full and possession is transferred.
Registration of title
The buyer obtains full title when the property is entered onto the land register. You should be aware that the registration procedure can take anywhere from one to six months from the time of filing the necessary documents at the Land Registry office.
Other Hungary property guides:
- For statistical, demographic and economic data, see the Hungary Property Guide: Fact Sheet.
- For information on Brazil’s property law and markets, view our Hungary Property Guide: Key Facts and Markets
- For information on the purchase process and financing, see the Hungary Property Guide: Buying and Financing Guide.