Tax payable when using and selling a property
Vendors are not liable to pay VAT on certain real estate transactions (treated as exempt) including the rental of residential property or the sale of residential property for the second or subsequent time after its construction. However, such vendors are not entitled to reclaim any VAT charged to them in connection with these activities.
Individuals are taxed at 25% on income from the sale of property in Hungary, unless a double tax treaty provides otherwise. So, if you bought a flat for HUF 20 million and now sell it for HUF 24 million, you will have to pay a quarter of the HUF 4 million profit to the tax man.
The documented costs of acquiring and developing the property allowed by Hungarian law may be deducted on income from the sale., It may be possible to deduct the costs of travel and service fees as well that are associated with the property as part of your global income; we suggest that you consult a tax advisor in the country where you pay taxes. Hungary has long standing double taxation treaties with most countries making this situation fairly straightforward.
Here is no annual amortization on the property and the level of tax payable starts to depreciate at 10% per year only from the sixth year of ownership onwards.
Tax can be reclaimed on any income from a property sale used by the seller (or a close relative) to buy or to secure title to other residential properties within a limited period of time, but this is only really of relevance to buyers who are legally resident in Hungary
Corporate tax and Dividend tax
In the case of property acquired by a company, the profit from the sale of the real estate is taxed at the current corporate tax rate of 16%.
The company can deduct all expenses relating to its activity which is holding the property. The cost of any renovation work that increases the value of the property, stamp duty, and lawyers/agents fees can be used to reduce your tax base on income from rentals or profit from selling the property. Such work does not include maintenance costs - so just painting the place doesn't count.
The company can devaluate the property, this basically means that the company will only have profit in the books when selling the property. The maximum tax-deductible depreciation on industrial buildings and buildings with long useful lives is 2%, while rental properties can be depreciated at a preferential rate of 5%. When calculating book depreciation, it is important to ensure that it corresponds to the anticipated useful life of the property and to the company's accounting policy.
Under the Act on Corporation Tax, 20% withholding tax must be deducted from dividends paid abroad by Hungarian companies unless paid to an EU resident parent whose holding in the payer meets certain conditions or a double tax treaty provides otherwise.
Lastly, if a company sells the whole company, the seller doesn't have to pay capital gains tax in Hungary, and the purchaser does not have to pay stamp duty.
Tax on Rental
There are two options for the private landlord who is registered in Hungary as a taxpayer: can either pay a simple 25% of rental income to the tax office, or you can have the income included in your earnings and pay income tax after it. Unless you are a very low wage earner in Hungary, you will probably find yourself in the upper 38% income tax bracket, so the second option is not usually worth doing however if you choose the 25% flat rate all income earned shall be taxed, the expenses cannot be deducted.
A company has to pay 16% corporate tax on any profit made from renting out a property. Agents' fees and - if you live abroad - the cost of necessary travel to Hungary might be tax-deductible.
Hungary is relatively unusual in that a company can depreciate the value of a residential real estate asset over time at 2% per year. This means that if you buy a flat for HUF 10 million, it can go through the company's books as an expense at the rate of HUF 200,000 per year, which will considerably reduce the corporate tax payable from rental income.