INVESTING IN PROPERTY IN HUNGARY
There are two possibilities for investors to acquire property in Hungary:
a) to buy the property as a private individual or as a company not based in Hungary.
b) to set up a Hungarian company that will buy the property.
A) Buying as a private individual or as a company not based in Hungary
If a foreign individual or company buys the property in Hungary, they have to obtain permission from the Administrative
Office (Hungary has a 5 year exemption period starting from 1st May 2004, after this the restriction will be lifted). There
are three exceptions:
i) If the investor is an EU / EEC citizen and the property purchased will be his primary residence.
ii) If the investor is an EU / EEC citizen and the property purchased is not a residential property (e.g. garage)
iii) If the investor is an EU / EEC citizen and has been living in Hungary for at least 4 years legally.
In reality permission is granted in almost all cases and can take up to 60 days to be obtained. During this time the purchase
can proceed and the contract concluded. Although the parties to the contract are bound to their statements, the purchase
contract shall only be considered effective if the permission is granted.
The Administrative Office will grant permission as long as the purchase does not interfere with any municipal or other
public interests which is decided by the mayor of the local government.
What happens if the Administrative Office rejects the request for permission?
Should the Administrative Office reject the request, the purchase contract shall be treated as non existent. This means that
the parties have to restore the original situation (to repay the purchase price and to return the possession of the property).
In this case the solution is to set up a Hungarian company which will buy the property.
To be sure that the seller will conclude the purchase contract with this company, it is advisable to sign an agreement
simultaneously along with the signing of the purchase contract. This means that in the situation where permission is not
granted, the seller undertakes to conclude the purchase contract with the Hungarian company to be established by the
investor and the investor undertakes to establish a Hungarian company.
B) Establishing a Hungarian company
The "granting of permission" can be avoided if an investor establishes a Hungarian registered company.
We suggest to establish a company only if the investor intends to buy more than one property (if the subject of the purchase
is a whole building or a building site and the investor will realize a project, of course he should establish a – project –
company).
The reasons: a) As mentioned it is very likely that permission will be granted for the first or even for the second property if
the investor buys the property as a private individual. Permission for further properties is less likely, but not impossible at
all (It is possible for couples do it in such a way that the wife buys one property and the husband buys another). However it
is more advisable to establish a company in this case. b) the other reason is related to taxation: if a private person buys more
properties in Hungary and then he/she sells them in a shorter period, the tax authority is entitled to say that it is a
businesslike activity, and so the private person will have pay 18% personal income tax on the amount of the capital gains
until HUF 1,700,000 and 36% capital gains tax of the amount in excess hereof (and not a fix 25% rate). You pay 25%
capital gains tax if the purchase and the sale doesn’t look like as a businesslike activity, e.g. you have an apartment and you
Harron Law Office
(Budapest Bar Associtaion 2733)
Dalszínház u. 10. II.1., H-1061 Budapest
Phone: (+36-1) 354-1322, (+36-1) 354-1763, (+36-1) 354-1764, Fax: (+36-1) 354-1321
Bank connection: Raiffeisen Bank Zrt,. iban.: HU94 1201 0611-0105 7668-0010 0004
e-mail: tunde.harron@harron.hu Internet: http://www.harron.hu
2
sell it later. The other benefit of having a Hungarian company is that it can deduct more cost from its income, e.g. flight
tickets, hotel costs, costs of the furniture; according to the main rule of taxation private persons can not deduct any costs
against the rental income (there are some exceptions). Please consult with an accountant about the taxation before you make
a decision based on taxation point of view.
What type of company should be established?
If an investor establishes a Hungarian company, it is advisable to set up a limited liability company (Ltd.), because the
liability of the members shall only extend to providing their capital contribution undertaken in the articles of association.
The minimum amount of the primary capital of the Ltd. is 500,000 HUF. The amount of each primary stake (share) may not
be less than HUF 100, 000.
Seat of the company
The seat of the company shall be at an address where official letters for the company can be received safely.
Articles of association:
The articles of association shall be signed by all members and set into a notarial document or countersigned by a Hungarian
attorney. It means that all of the members must come to Hungary to sign or the managing director of the company must
come over and the other member(s) can sign an authorization at the Hungarian Consulate allowing an authorized person to
sign the articles on their behalf. The articles of association shall contain the name and the address of the company, the name
and the personal data of the members and the managing director, the main activity of the company, the primary capital of
the company, the capital contributions of the members, and the rules of the members’ meeting.
The managing director:
If the company has more than one member, the members must decide who will become the managing director of the
company. If they want, they can decide that all the members will be the managing directors of the company.
The managing director of the company must open a bank account in Hungary.
If you don’t want to include anything special in the articles of association, the registration of the company takes only 1 hour
and costs are only HUF 20,000 not including lawyer fee. There are negligible costs involved in opening a bank account.
Some information about the purchase contract of the property
Written and countersigned contract
According to the Hungarian law the purchase contract of a property shall be in writing. The contract is suitable for the
registration into the property register only if it is drafted in a notarial document or countersigned by a Hungarian attorney.
Authorized person
If the seller or the buyer can not sign the contract in front of the attorney (e.g. he has to travel home and the purchase
contract is not ready or the deposit has not been transferred to the lawyer), he can authorize somebody who will sign the
contract on his behalf later. This authorization shall be countersigned by an attorney as well.
The signature of the parties can be authenticated abroad by the Hungarian Consulate as well, if the parties do not come to
Hungary.
When does the buyer acquire the ownership of the property?
The buyer may acquire the ownership of the property when his title to the property has been registered into the property
register and if it is necessary the permission for the purchase has been granted. The title can be registered only if the seller
grants his consent for the buyer to have his title to the property entered into the property register.
The seller grants his consent only when the full purchase price has been paid to him and so in the purchase contract he
reserves his title to the property until the payment of the full purchase price.
About the property register in Hungary
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Harron Law Office
(Budapest Bar Associtaion 2733)
Dalszínház u. 10. II.1., H-1061 Budapest
Phone: (+36-1) 354-1322, (+36-1) 354-1763, (+36-1) 354-1764, Fax: (+36-1) 354-1321
Bank connection: Raiffeisen Bank Zrt,. iban.: HU94 1201 0611-0105 7668-0010 0004
e-mail: tunde.harron@harron.hu Internet: http://www.harron.hu
3
All data pertaining to a piece of real estate and any associated rights and facts of legal importance are recorded on the title
deed. The title deed of the property proves the name and data of the owner of the property, and it states if there is a
mortgage or other burden on the property.
Registers of real estate are public information. Title deeds may be reviewed without restriction by any person and official
copies may be requested.
The purchase contract shall be submitted into the land office within 30 days of the date of the contract.
Please note that the transfer of title deed does not constitute any right, so it does not have the legal consequence of transfer
of ownership of the property.
The Hungarian property register contains all the relevant data of the properties. If somebody failed to register his right to the
property in the register, such right shall be considered not effective. It is therefore very safe to buy property in Hungary.
Taxation and duties
Stamp duty on the transfer of the property
After buying real estate the buyer shall pay duty on the transfer of the property following notice from the Tax Authority.
The basis of the duty:
The amount shall be established by the Tax Authority on the basis of the market value.
The rate of the duty:
In the case of the acquisition of a residential property, the rate of the duty is 2 % up to the value of 4 million HUF and 6 %
of the amount of market value in excess thereof (general rule).
In the case where you buy a commercial property the rate of duty is 10 % of the value of the property (including the value
added tax).
If a company acquires real estate and its main activity is buying and selling of real estate, the rate of the duty shall be 2 % of
the value of the real estate provided that within two years from the acquisition of the property the company resells this
property. If the company undertakes to resell the property in 2 years, but it does not fulfill this obligation in 2 years, the
company will have to pay double the amount of the difference between the normal rate of the stamp duty and the rate of
2%.
Exemption
The first purchase of a new residential property the market value of which should not exceed 15 million HUF is exempt
from duty provided that it is built for the purpose of sale by a company entitled to build, develop and sell residential
property.
If the market value does not exceed 30 million HUF one must pay 6% stamp duty of the amount in excess of 15 million
HUF. The duty will be imposed by the Tax Authority after 1 to 6 months following the signing of the purchase contract.
Stamp duty on inheritance:
The rate of the stamp duty:
- 2,5 % up to the value of 18 million HUF
- 6% between the value of 18 million HUF and 35 million HUF
- 11% of the amount in excess of 35 million HUF
These rates are valid if next of kin (son, daughter, parents) inherit your property and if the property is residential. (An heir
has to pay stamp duty if they inherit a property located in Hungary).
Local Property Tax
Local property tax shall be paid to the local city council by the owner of the property. The tax is payable according to the
basic area of the property. The rate of the tax and the exemption from taxation depends on which district your property is
located. The general rate is around 4-5 EUR/sqm/year. The tax is payable in two parts, the first part shall be paid by 15 of
_____________________________________________________________________________________________________________________
Harron Law Office
(Budapest Bar Associtaion 2733)
Dalszínház u. 10. II.1., H-1061 Budapest
Phone: (+36-1) 354-1322, (+36-1) 354-1763, (+36-1) 354-1764, Fax: (+36-1) 354-1321
Bank connection: Raiffeisen Bank Zrt,. iban.: HU94 1201 0611-0105 7668-0010 0004
e-mail: tunde.harron@harron.hu Internet: http://www.harron.hu
4
March and the other half by 15th of September of each year. Generally there is no tax payment obligation if the property is
residential and owned and used by a private person for residential purposes. The following table shows the taxation rules in
the city centre in the main 6 districts:
District
5th
district
amount of
the tax in
HUF
(sqm/year)
1,083
6th
district
1,083
7th
district
1,040
8th
district
1,080
9th
district
1,080
subject of the tax
exemption
residential and non residential
property
any residential property which is owned
by a private person, provided that the
owner does not pursue any business
activity in the property (e.g. the property
is not the seat of any company) and he
uses or utilizes the property only for
residential purposes (e.g. he is living in it
or he rents it our for residential purpose)
residential and non residential property any residential property which is owned by
a private person, provided that the owner’s
or his close relative’s registered address is
the same as the address of the property in
question, and the owner does not rent out
this property or he does not pursue any
business activity in the property (if the
property is the seat of a company as well,
than tax is payable proportionally
depending on how many sqm the company
is using).
residential and non residential
any residential property which is owned
property
by a private person provided that the
property is used only for residential
purposes (it can be rented out though for
residential purposes!!). If the property is
the seat of a company as well, than tax is
payable proportionally depending on how
many sqm the company is using.
residential and non residential
a) any residential property which is owned
property
by a private person provided that the
property is used only for residential
purposes (it can be rented out though for
residential purposes!!!). If the property
is the seat of a company as well, there is
no tax payment obligation!
b) garage (only one / person) which is
owned by a private person (if it is bigger
than 25 sqm, you have to pay tax only
for the area which is above 25 sqm).
residential and non residential
a) any residential property which is
property
i) owned by a private person (but not by
an entrepreneur) even though if the
property is the seat of a company
ii) owned by a company but the property
is not the registered seat or branch
office of this company
b) garage (and the storage place which
_____________________________________________________________________________________________________________________
Harron Law Office
(Budapest Bar Associtaion 2733)
Dalszínház u. 10. II.1., H-1061 Budapest
Phone: (+36-1) 354-1322, (+36-1) 354-1763, (+36-1) 354-1764, Fax: (+36-1) 354-1321
Bank connection: Raiffeisen Bank Zrt,. iban.: HU94 1201 0611-0105 7668-0010 0004
e-mail: tunde.harron@harron.hu Internet: http://www.harron.hu
5
belongs to the garage) which is owned
by a private person (if it is bigger than
16 sqm, you have to pay tax only for the
area which is above 16 sqm).
Taxation on transfer of the property
Private individuals:
According to the bilateral agreements on avoiding double income taxation (which is the case for most countries), investors
have to pay the personal income tax on transfer and rental of the property in Hungary according to Hungarian tax law.
Capital gains tax
If you sell your property as a private person, the income arising from the sale is subject to personal income taxation in
Hungary. Residential property that has been owned for 5 years or more is exempt from capital gains tax. In the 2 nd year from the submission of the purchase contract in the land office- the net gain is reduced by 10 %, in 3 rd year by 40% and in
the 4th year by 70%.
Non residential property that has been owned for 15 years or more is exempt from capital gains tax. After six years of
ownership (the first year is the year following the year of the purchase), the net gain is reduced by 10 % for each subsequent
year of ownership.
The basis of the capital gains tax
The basis of the tax is the income: purchase price received from the transfer of the property, but some expenses shall be
subtracted from this amount, such as the cost of acquisition and other related expenses e.g. lawyer fees, stamp duty, valueincreasing investments and expenditures incurred in connection with the transfer. Please note the cost of furnishing,
traveling and accommodation can not be deducted.
The rate of the capital gains tax
The general rate of the capital gains tax is 25 %.
BUT if a private person buys more properties in Hungary and then he/she sells them in a shorter period, the tax authority is
entitled to say that it is a businesslike activity, and so the private person will have pay 18% personal income tax on the
amount of the capital gains until HUF 1,700,000 and 36% capital gains tax of the amount in excess hereof (and not a fix
25% rate). You pay 25% capital gains tax if the purchase and the sale doesn’t look like as a businesslike activity, e.g. you
have an apartment and you sell it later.
Taxation on the rental income
If you as a foreign private individual rent out your apartment in Hungary then, there are two possible ways in which you can
pay the personal income tax on the rental income in Hungary.
These options are the following:
1.
Option 1: the main rule: the lessor pays 25% personal income tax on the whole income connected to the renting
activity (for example rental fee, utility fees if paid by tenant to lessor against an invoice). In this case no reduction will
be acceptable from the income, which means that you can not reduce the income with the utility costs, the
management fees and the other maintenance costs connected to this activity. This way of taxation is simpler than
option two.
2.
Option 2: In this case you shall add up all of your income arisen during the tax year and shall pay the tax based on the
rates defined in the Act about the Personal Income Tax which are the following in 2008:
If the whole income is between HUF 1 – HUF 1,700,000 than the tax is 18%
If the whole income is more than HUF 1,700,000 than the tax is HUF 306,000 (18% on HUF 1,700,000) and 36 % on
the amount which exceeds HUF 1,700,000
If you choose this way of taxation than you can reduce the income with costs according to the following rules: a) the
_____________________________________________________________________________________________________________________
Harron Law Office
(Budapest Bar Associtaion 2733)
Dalszínház u. 10. II.1., H-1061 Budapest
Phone: (+36-1) 354-1322, (+36-1) 354-1763, (+36-1) 354-1764, Fax: (+36-1) 354-1321
Bank connection: Raiffeisen Bank Zrt,. iban.: HU94 1201 0611-0105 7668-0010 0004
e-mail: tunde.harron@harron.hu Internet: http://www.harron.hu
6
income can be reduced with a cost allowance which is 10 % of the income. As it is only an allowance the income can
be reduced without showing any invoices to the tax authority; b) the income can be reduced with all the costs arisen in
connection with the renting activity – e.g. management fee, maintenance costs, utility costs - but in this case you shall
prove all costs with invoices drawn on your name to the tax authority.
If you intend to choose Option 2 than you shall sign a statement in which you confirm that you would like to pay the
tax this way. In this statement you shall state that how you want to reduce your income: by costs allowance without
invoices or by all the costs to be justified with invoices. In the second case you shall write in the statement the
expected amount of the costs which will be arisen during the tax year.
You will have to request a certification from the Hungarian National Tax Authority about your reported income and the tax
you have paid, and this certification and the tax report shall be forwarded to the accountant in your home country. The tax
which was paid in Hungary will be deducted from the tax payable in your home country. The tax has to be calculated there,
based on rules of the home country. So there is no double taxation.
Company
Municipal tax
2% of the total income of the company. Payable yearly.
Corporate /Profit tax
If a company transfers or lets the property, it has to pay corporate tax after profits.
The rate of the corporate tax is 16 +4 % of the positive tax base. Payable yearly.
Costs that can reduce the tax base: lawyer fees, stamp duty, value-increasing investments, furnishings, accommodation costs
and cost of traveling.
Dividend tax
If a member of the company draws the money from the company, he has to pay dividend tax: partly in Hungary and the rest
is payable in the home country.
Forest and arable land
Foreign investors can not acquire forest and arable land, except when this kind of real estate is inherited or if the
person/business has been living and pursuing agricultural activity in Hungary for at least for 3 years and intends to pursue
this activity in Hungary in the future (Hungary has a 7 year exemption period starting from 1st May 2004, after this the
restriction will be lifted).
1 January 2009
dr. Tünde Harron
attorney at law
Harron Law Office
_____________________________________________________________________________________________________________________
Harron Law Office
(Budapest Bar Associtaion 2733)
Dalszínház u. 10. II.1., H-1061 Budapest
Phone: (+36-1) 354-1322, (+36-1) 354-1763, (+36-1) 354-1764, Fax: (+36-1) 354-1321
Bank connection: Raiffeisen Bank Zrt,. iban.: HU94 1201 0611-0105 7668-0010 0004
e-mail: tunde.harron@harron.hu Internet: http://www.harron.hu
7
*Please note that the information given about taxation in this factsheet is only informative and we recommend you consult
with your own Hungarian accountant or tax advisor regarding your own specific case. The information in this factsheet
based upon the legal rules valid on date written above.
_____________________________________________________________________________________________________________________
Harron Law Office
(Budapest Bar Associtaion 2733)
Dalszínház u. 10. II.1., H-1061 Budapest
Phone: (+36-1) 354-1322, (+36-1) 354-1763, (+36-1) 354-1764, Fax: (+36-1) 354-1321
Bank connection: Raiffeisen Bank Zrt,. iban.: HU94 1201 0611-0105 7668-0010 0004
e-mail: tunde.harron@harron.hu Internet: http://www.harron.hu