FAQ
Frequently Asked Questions
Regarding Property Investments in Hungary
- How has the recent economic crisis affected the country?
- Can a foreigner buy property in Hungary?
- What is the capital gains tax when selling?
- How much is the tax on rental income?
- Do I have to pay VAT when purchasing property?
- Is it true there is no stamp duty on new-built property?
- When will the euro be introduced as currency in Hungary?
- What is the current base interest rate in Hungary?
- Where can I find the current exchange rates of the forint?
- Are 100% mortgages available for foreigners?
- Are prices generally negotiable?
- How much are the usual legal fees and what do they cover?
- What services are included in the agency fee when buying an apartment?
- Does Hungary have property taxes payable every year … or every month?
- How much are the taxes (approximately) as a percentage of the purchase price?
- Is homeowner’s insurance required?
How has the recent economic crisis affected the country?
Hungary is coming out of the crisis, the GDP is growing, the Hungarian forint (HUF) has been stabilized and strengthened. Property prices have begun to rise in 2010.
Since prices did not run away in 2007-2008, there was no bubble to speak of on the property market. Construction projects have generally stopped, however there are a few exceptions; there has been a lot of downsizing and restructuring in the industry.
Can a foreigner buy property in Hungary?
Yes, there is no need to establish a local company, foreign nationals can apply for a permit from the local administrative office (a routine procedure at the municipality) and own free-hold property in the country without restrictions.
What is the capital gains tax when selling?
For a private person it is 25%. Unfortunately no costs of redecoration (painting, new tiles), property management, or accounting can be offset. Only expenses of lawyer, broker agent, the stamp duty, advertisement costs, and value-increasing renovations (expansion, new heating system) may be deducted from the profit for a private person. Make sure you keep the invoices addressed to your name and the property involved. Bills, receipts of payment are not enough.
No capital gains tax after 5 years if owned by private persons.
- 1st year after purchase: 100% of profit taxed @25%
- 2nd year after purchase: 90% of profit taxed @25%
- 3rd year after purchase: 60% of profit taxed @25%
- 4th year after purchase: 30% of profit taxed @25%
- 5th year after purchase – no capital gains tax
For a company the corporate tax on profits is 16%. The advantage here is that related expenses and utility costs can all be offset against income.
How much is the tax on rental income?
According to Act CXVII of 1995 on Personal Income Tax, there are three ways of calculating and paying income tax on rental (for private persons). 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%. So unless the rental income exceeds 1540 EUR/month, the tax is 17%. Property management fee, tenant finding fee, costs of furnishing and renovation, as well as the utility bills and the interest paid on a bank loan can all be offset against the rental income.
In case a company owns the property, the corporate tax on profits is 16%.
Do I have to pay VAT when purchasing property?
No. Second-hand residential property is VAT-exempt by default.
However, when purchasing off-plan, brand new property for the first time, there is VAT on the price. This can be reclaimed by a company registered for VAT.
In some cases, when property has been purchased and is being resold by a company, the seller will add VAT to the price, but this only applies to commercial property.
Is it true there is no stamp duty on new-built property?
Not true. There is stamp duty, but it is significantly decreased for new-built property.
Only the amount over 15 million HUF (ca. 56,800 EUR) is taxed at 4%. Anything below this threshold is tax free.
So if you buy a small new-built apartment, there is no stamp duty.
However, if the purchase price exceeds 30 million HUF (ca. 113,600 EUR), the tax is levied on the full price, following the calculation below, just as it applies to old resale property:
Up to 4 million HUF (ca. 15,000 EUR) the tax is 2%, that is 300 EUR. For the remainder of the purchase price one must pay 4% stamp duty.
Keep in mind that if garage and/or storage space is purchased along with the apartment, it is taxed at 4%, regardless of it being new, because it is treated as commercial property.
The tax on land is 4%. This may be completely waived if one builds on it within 4 years and this is indicated in advance.
When will the euro be introduced as currency in Hungary?
Introduction of the euro is the most important mid-term goal of the Hungarian economy. Current guestimates place it around 2014.
The National Changeover Plan is in place. Details:
http://english.mnb.hu/engine.aspx?page=mnb_euro_practical
What is the current base interest rate in Hungary?
5.25% (since April 27, 2010) as determined by the Hungarian Central Bank.
Check for updates on the following web site:
http://english.mnb.hu/Engine.aspx
Where can I find the current exchange (mid-) rates of the forint?
The web site of the Hungarian Central Bank (MNB):
http://english.mnb.hu/engine.aspx?page=napiarfolyamok
Are 100% mortgages available for foreigners?
Not right now. Not even to local residents. A 60-65% LTV can reasonably be expected.
Are prices generally negotiable?
Yes, we have come full circle, it is a buyer’s market again. At times apartments will sell for 10-15% less than the advertized price. Sellers will frown, but the current economic conditions are on the side of the buyers and CE Invest is ready to assist in the negotiation process.
How much are the usual legal fees and what do they cover?
Between 1 – 1.5% of the purchase price.
The fee covers drawing up the contract; verifying the information on the property, the identity of the seller as well as buyer; handing in the purchase documents to the Land Registry; and following through until new ownership is registered.
Legal fees in Hungary are paid in advance by the buyer.
What services are included in the agency fee when buying an apartment?
We offer a “no sale no fee” policy and our all-inclusive Estate Agency Fee includes FULL assistance throughout the purchase process with no up front costs or hidden charges.
Agency fee is a success-related fee due after preliminary contract or purchase contract has been signed by seller and buyer. It includes the following services:
- Investment advice regarding the choice of property and the right investment vehicle
- Tax planning
- Properly gathering, verifying, and presenting info on property
- Arranging and conducting viewings
- Translations & interpreting during the purchase process at lawyer, notary, bank, accountant, and third parties
- Negotiation to obtain best possible price and conditions
- Reminders to save time and money during the process
- Follow-up service
Professional collection and handover of documents to property management after the purchase
Does Hungary have property taxes payable every year … or every month?
Property tax is payable every year to the local government (local municipality). It is based on square meter area. The tax varies from town to town, in many places there is no tax on residential property, unless it is rented to a business.
Property tax is based on land, so apartments in multi-unit buildings are liable to pay only a small percentage due, as determined by the plot the building is sitting on.
How much are the taxes (approximately) as a percentage of the purchase price?
Property tax is very low, compared to Western European standards. It is based on the land area the building occupies, so it mainly concerns large industrial facilities, warehouses, office buildings, shopping malls (commercial property). In the districts of Budapest residential buildings share the tax payable among the tenants in a building, which comes out to around 0.1% per year, per household, depending on how big the building is, how many apartments there are in the building, and the current rate at the given district municipality.
This service is included in the general property management accounting services of CE Invest, we submit the form and pay the tax on behalf of the owner.
Is homeowner’s insurance required?
It is not required. However in most Budapest buildings a certain amount of insurance coverage is included in the mandatory common costs payable to the building. When taking a bank loan, it becomes a requirement.
CE Invest will not manage apartments without a valid homeowner’s insurance. There are reasonable annual insurance packages which are tailored for rental apartments and include liability insurance.
