Property Taxes in Hungary
Peter, Saturday, 9 November 2013
This article is part of a series of 8 articles about buying property in Hungary. The other articles in the series cover the following topics:
Taxation in Hungary has always been a bit of a fuzzy area, where buyers and sellers alike struggle to find the best possible deal, most commonly at the expense on the tax authorities. The gray areas of the tax system has led to the development of a rather bullish and bureaucratic system, where the authorities try to exercise more control by making even more rules. This in the end results in a downward spiraling system, where regulations patches up loopholes here, and creates another elsewhere. As Hungary is on the bottom half of Transparency International’s corruption index on the EU, it is even more important to know every rule and regulation in the country. Making sure that everything is documented and paid in time is the best way to avoid taxation pitfalls. But first, every foreigner investing in Hungary should become familiar with the tax system itself.
First of all, once signing a purchase agreement the question of transfer tax enters. Generally, all real estate deals are subject to a crispy 4% transfer tax, but for apartment and smaller flats and houses this can melt a fairer 2%. The magic number if 4 million Hungarian Forints, or HUF, which is around 18,700 USD. If the deal was struck at a price under 4 million, the tax is 2%, if it was over, 4% has to be paid. It is important to remember that this two tier system only applies to residential property, and all other property must pay the full 4% up to a certain point. This point is 1 billion HUF (4.7 million USD), where once again the reduced fee of 2% kicks in. It is important to remember that the first sale of a residential property is subject to VAT, or Value Added Tax, which is a massive 27%. Sale of land of also subject to this form of tax.
Owning real estate still has some tax obligations. Since there is no government general mandate on property tax local municipalities are able to choose whether to require of not this form of payment. This is one of the deciding factors when it comes to picking location, as there are several counties out there with no property tax whatsoever. This form of system is relatively popular in tourist trap areas, such as the immediate vicinity of Lake Balaton, where a lakeside town can set up a hefty system.
One form of property tax is land tax, which is imposed by the local government on idle land, generally in downtown areas. This is especially common in the capital city, where open lots are generally used as private parking space businesses. The local council either sets a pretty modest square inch based tax system, for example HUF 300, which is roughly one and a half U.S. dollar; or decides to levy the tax in form of a percentage of the adjusted market value of the property, with adjusted market value being roughly half of the actual value.
Another form of property tax is building based. Again, this is set out by a local council and could vary from town to town. Building tax is due to paid on a yearly basis, and is usually around HUF1600 (or $6) per square meter. Once again to complicate matters, there is an alternate payment form, popular mostly around hot tourist destinations. The council can set a yearly market value tax on the building, which is set to be 3.6% at maximum.
Finally, for the matter of capital gains and rental income. Capital gains, realized by a nonresident foreigner in case of property sale is subject to a much simpler, flat 16% tax. The good news is that expenses and other related costs can be deducted from this amount. Rental income is also taxed at a flat rate of 16%, and once again it is deductible. If properly documented, expenses, such as repairs, maintenance, administrative payments and amortization can reduce this amount. There is an alternate payment options here, so that the owner can decide to pay rental income tax in form of a general 10% notional income deducted from the gross income.
Generally speaking, Hungarian property taxes can be categorized as moderate to high, as most local councils try hard to squeeze out any extra income from real estate owners. It is important to have a great lawyer, as proper documentation of the process and knowledge of the current tax forms is essential. Having an expert at hand can also be useful for conducting a rental based business in Hungary, as book keeping can be a hard to follow and tiresome process. The local tax authorities, called NAV (Nemzeti Adó és Vámhivatal, or Hungarian Tax and Financial Control Administration) is rather bullish when it comes to exercising its control. As more and more foreigners become interested in Hungarian real estate, it is understandable that the authorities pay extra attention to nonresident investors. Therefore making sure that transfer and property taxes are in order is of the upmost significance when buying and maintaining real estate in Hungary.
This article is part of a series of 8 articles about buying property in Hungary. The other articles in the series cover the following topics:
Taxation in Hungary has always been a bit of a fuzzy area, where buyers and sellers alike struggle to find the best possible deal, most commonly at the expense on the tax authorities. The gray areas of the tax system has led to the development of a rather bullish and bureaucratic system, where the authorities try to exercise more control by making even more rules. This in the end results in a downward spiraling system, where regulations patches up loopholes here, and creates another elsewhere. As Hungary is on the bottom half of Transparency International’s corruption index on the EU, it is even more important to know every rule and regulation in the country. Making sure that everything is documented and paid in time is the best way to avoid taxation pitfalls. But first, every foreigner investing in Hungary should become familiar with the tax system itself.
First of all, once signing a purchase agreement the question of transfer tax enters. Generally, all real estate deals are subject to a crispy 4% transfer tax, but for apartment and smaller flats and houses this can melt a fairer 2%. The magic number if 4 million Hungarian Forints, or HUF, which is around 18,700 USD. If the deal was struck at a price under 4 million, the tax is 2%, if it was over, 4% has to be paid. It is important to remember that this two tier system only applies to residential property, and all other property must pay the full 4% up to a certain point. This point is 1 billion HUF (4.7 million USD), where once again the reduced fee of 2% kicks in. It is important to remember that the first sale of a residential property is subject to VAT, or Value Added Tax, which is a massive 27%. Sale of land of also subject to this form of tax.
Owning real estate still has some tax obligations. Since there is no government general mandate on property tax local municipalities are able to choose whether to require of not this form of payment. This is one of the deciding factors when it comes to picking location, as there are several counties out there with no property tax whatsoever. This form of system is relatively popular in tourist trap areas, such as the immediate vicinity of Lake Balaton, where a lakeside town can set up a hefty system.
One form of property tax is land tax, which is imposed by the local government on idle land, generally in downtown areas. This is especially common in the capital city, where open lots are generally used as private parking space businesses. The local council either sets a pretty modest square inch based tax system, for example HUF 300, which is roughly one and a half U.S. dollar; or decides to levy the tax in form of a percentage of the adjusted market value of the property, with adjusted market value being roughly half of the actual value.
Another form of property tax is building based. Again, this is set out by a local council and could vary from town to town. Building tax is due to paid on a yearly basis, and is usually around HUF1600 (or $6) per square meter. Once again to complicate matters, there is an alternate payment form, popular mostly around hot tourist destinations. The council can set a yearly market value tax on the building, which is set to be 3.6% at maximum.
Finally, for the matter of capital gains and rental income. Capital gains, realized by a nonresident foreigner in case of property sale is subject to a much simpler, flat 16% tax. The good news is that expenses and other related costs can be deducted from this amount. Rental income is also taxed at a flat rate of 16%, and once again it is deductible. If properly documented, expenses, such as repairs, maintenance, administrative payments and amortization can reduce this amount. There is an alternate payment options here, so that the owner can decide to pay rental income tax in form of a general 10% notional income deducted from the gross income.
Generally speaking, Hungarian property taxes can be categorized as moderate to high, as most local councils try hard to squeeze out any extra income from real estate owners. It is important to have a great lawyer, as proper documentation of the process and knowledge of the current tax forms is essential. Having an expert at hand can also be useful for conducting a rental based business in Hungary, as book keeping can be a hard to follow and tiresome process. The local tax authorities, called NAV (Nemzeti Adó és Vámhivatal, or Hungarian Tax and Financial Control Administration) is rather bullish when it comes to exercising its control. As more and more foreigners become interested in Hungarian real estate, it is understandable that the authorities pay extra attention to nonresident investors. Therefore making sure that transfer and property taxes are in order is of the upmost significance when buying and maintaining real estate in Hungary.
All types of property for sale in Hungary by private sellers and estate agents. Find your perfect farm, winehouse or apartment near Lake Ballaton, in Bács-Kiskun, Baranya, Somogy or Tolna.
The buying process of real estate in Hungary can be a tiresome process as legal and administrative procedures can go on for months. The system is
highly
bureaucratic, but that also means that it is almost error and scam free. However, paying proper attention to every step and detail is vital, since any
mistake can and almost certainly will prolong the process.
More articles