October 16, 2018
Residents are taxed on their worldwide income. Married couples are taxed separately.
Income from all sources is distinguished into the following categories: (1) aggregate income including income from dependent personal services, independent personal services, and other aggregate income, (2) entrepreneurial income, (3) capital gains in movable and immovable property, (4) income from capital, including dividends interest, and capital gains on securities, (5) benefits in kind, (6) income from the receipt of securities, options, and similar rights, and (7) miscellaneous income, like small receipts and rental income from immovable property.
The income tax is levied at a flat rate of 15%.
Rental income is taxed at a flat rate of 15%. The taxable income can be computed by:
- Deducting expenses actually incurred and documented in the renting process such as lighting, maintenance, administrative costs, etc.
- Or by deducting a 10% notional deduction from the gross income (10% expense ratio).
Capital gains realized by resident individuals are taxed at 15%. Acquisition costs and related expenses, improvement costs, and cost of transferring the property can be deducted from the revenue to arrive at the net capital gains. If the deductible expenses are not documented and if the acquisition costs are not substantiated, the 15% rate will be applied to 25% of the gross proceeds.
The taxable gain is reduced by 10% every year after the fifth year, so that in the fifteenth year after acquisition, the taxable gain is reduced to zero (i.e. 10% reduction in the 6th year after the year of acquisition, 20% in the 7th year, 30% in the 8th year, 40% in the 9th year, 50% in the 10th year, etc.).
Local governments can decide whether or not to levy property taxes on their area of jurisdiction. The tax base and tax rates may vary for each municipality.
The building tax may be imposed by the local government, payable by the property owner each year. The rates and the tax base vary from each locality/municipality, subject to:
- A maximum of HUF1,100 (€3.60) on a per square metre basis or
- A maximum of 3.6% on the market value of the building
Land Tax may be levied on idle land on the portion classified as a "downtown area" by the local government council. The council either levies the tax as:
- Per square metre of the plot at the maximum rate of HUF200 (€0.65) per sq. m.,
- Or 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.
Most lawyers advise foreign nationals to set up a company registered in Hungary in order to purchase property.
Income and capital gains earned by Hungarian companies are taxed at a flat rate of 9%. Income-generating expenses and depreciation expenses are deductible from the gross income. In general, the depreciation rates of real estate vary between 2% and 5%.
Local (Municipal) Business 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).