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%. 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:
  o A maximum of HUF900 (£3) on a per-square-metre basis, or:
  o A maximum of 3% 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:
  o Per square metre of the plot at the maximum rate of HUF200/m² (£0.65/m²) or;
  o On the adjusted market value of the property, in which case the maximum tax rate is set at 3%. Adjusted market value is generally 50% 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% tax rate is levied on the gross rental income, without any cost deduction.
• Route 2 - Taxable income is calculated by:
  o Deducting expenses actually incurred and documented in the renting process such as lighting, maintenance, administrative costs, etc.
  o Or by deducting a 10% notional deduction from the gross income (10% 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% (10% for income up to HUF5 million (£16,200) if certain conditions are met). In general, the depreciation rates of real estate vary between 2% and 5%.

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%-10% 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% and 21% and it depends on the taxable amount and the relationship between the parties.
  

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