Income Tax on Rental Lowered in Hungary
Are you paying income tax on rental?
Property owners renting their apartment in Central Eastern Europe have a tax liability in the country where the real estate is located. We differentiate between corporate and private ownership in Hungary. In case the owner is a company, all the expenses connected to the operation of the company are deducted from the total income, VAT is handled separately, and the company is taxed at a 19% corporate tax rate on profits.
The governing document regarding taxation of non-residents is the agreement to prevent double taxation between Hungary and the investor’s country of residence. In most cases this document prescribes taxation in Hungary when the property being rented is located in Hungary. Later this tax may be deducted from a similar category of personal income in the country of residence.
According to Act CXVII of 1995 on Personal Income Tax, there are three ways of calculating and paying income tax on rental. The first method, called Source Tax, is simply deducting 25% of the rental income, submitting a tax return, and making the payment every quarter. The second method, called Combined Income Tax, deducts 10% as expenses and the remaining 90% is taxed at 17%. In the rare case that annual income exceeds 5 million HUF (18,500 EUR), the tax bracket is 34%. The third method, called Thorough Expense Reporting, allows the investor to deduct all relevant expenses, after which the remainder is taxed at 17%.
Note that in 2009 the tax threshold between the brackets was 1.7 million HUF (6300 EUR), which meant anyone receiving more than 525 EUR rent/month, including the utility expenses, was already in the higher tax bracket, which was 36%. The part if the income under 6300 EUR was taxed at 18% in 2009.
The deadline for submitting the tax returns and paying the income tax for the year 2009 is May 20, 2010, in case of private ownership.
We will register and obtain your Tax ID and Tax Number, prepare and submit your tax returns for an annual fee, please email for further info.
