Duties on real estate and business shares in Hungary
Regulatory update 4 minute read

Duties on real estate and business shares in Hungary

13 June 2017

Hungarian property and related business opportunities show great potential for investors due to the decreasing rate of corporate income tax, which is currently at 9%.

The Hungarian real estate market has experienced an amazing increase in the past two years. Ongoing construction is significant across the country in every area, from offices to industrial real estate, hotels and homes. And the number of real estate transactions has increased both in the rental and sale and purchase markets.

Hungarian property and related business opportunities show great potential for investors due to the decreasing rate of corporate income tax, which is currently at 9%.

Change of ownership in real estate is always a legal process and it has to be registered by the local Hungarian land registry office, the local municipality and by the tax authority as well.

Duties on the property transfer

The Hungarian law on Duties regulates the general taxable transactions in case of property transfer, and contains different exemptions and allowances - for example - for transactions between affiliated companies and for the commerce of real estates. Not only is the real estate transfer included in the regulation as a taxable transaction for the buyer, but the transfer of share of a Hungarian real estate holding company as well, which means that the company’s Hungarian real estates value in the balance sheet constitutes more than 75% of the total assets’ balance sheet value.

The general rate of the duty is 4% of the real estate’s market value with a limitation, 4% applies up to the property’s HUF 1bn value and 2% for the exceeding part. And the calculated duty can be maximum HUF 200m per property. As a detail in the definition, it is important to highlight the role of the market value. The tax base is always the market value instead of the purchase price, which is reviewed by the tax authority based on the registration. The tax authority has its own database to determine the market value and shall visit the property itself to supervise the values and levy the proper amount of the duty.

he above mentioned rates and regulation shall be applied in case of purchasing shares of companies holding real estate in Hungary.

Real estate for commercial purposes

The regulation contains special allowances for the commercial activity of the real estate, and the payable duty shall be 2% or 3% of the property’s market value. Additional conditions have to be met to use the reduced 2% duty. At least 50% of the revenue of the company has to be derived from the sale and purchase of real estate, and the company has to resell the real estate within two years. This year, a new rate has been implemented for the reselling activity: 3% is applied, and there is no time limit for selling the real estate.

Exemption for affiliated companies

The sale of property or the share of a real estate holding company within affiliated companies is an exempt transaction. The buyer company has a liability relating to its main activity, it has to be ‘renting and operating own property’ or ‘sale or purchase of own property’.

Exemption for preferential transactions

Corporate income tax law defines special transactions as preferential transformation, preferential exchange of shares and preferential transfer of assets. The definitions contain detailed terms and liabilities for the parties an if they are able to fulfil them the transfer of the property or the share shall be exempt of duty.

Conclusion

The above mentioned allowances and exemptions are just a few from the law on Duties which shall be considered by an investor, and several others shall be applied in different transactions and for different parties as well.

Further tax allowances and exemptions are defined for example, in corporate income tax law or in personal income tax law, which enable seller companies and individuals to reduce their tax liabilities.

Hungary is in the heart of Europe, with ideal locations all over the country, high-quality infrastructure and labour force. All these factors are catching the eye of an increasing number of investors. 

Find out more about our services in Hungary.

Written by

Andrea Farkas

Statutory Compliance Expert, TMF Hungary

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