Guide to Property Taxes in Hungary

Non-resident individuals are generally subject to Hungarian personal income tax on Hungarian-source income, including income derived from real estate situated in Hungary. Spouses are generally taxed separately for personal income tax purposes.

Income Tax

Hungary applies a generally flat 15% personal income tax (PIT) rate to most categories of individual income.

Rental income from Hungarian real estate is treated as income from an independent activity and is included in the individual's consolidated tax base.

Rental Income Tax

Rental income earned by an individual from Hungarian real estate is generally subject to 15% personal income tax.

The taxable rental income can generally be determined using one of two methods:

• 10% lump-sum expense deduction: 10% of gross rental revenue is treated as expenses without requiring supporting invoices. Consequently, 90% of gross rental income is taxable at 15%.

• Itemized expense deduction: qualifying and properly documented expenses directly connected with generating the rental income may be deducted. This can include certain operating, maintenance and renovation costs as well as allowable depreciation.

Under the 10% lump-sum method, the effective tax burden is therefore approximately:

Gross rental income × 90% × 15% = 13.5% of gross rental income.

Certain utility charges paid by the tenant may also be excluded from rental revenue where the statutory requirements are satisfied.

Capital Gains Tax

Gains realized by individuals from the disposal of Hungarian real estate are generally subject to 15% personal income tax.

The taxable gain is broadly calculated as the sale proceeds less the property's documented acquisition cost and qualifying expenses, including certain acquisition, improvement and disposal costs.

Importantly, the taxable portion of a real estate gain decreases according to the number of years elapsed since acquisition. Under the current rules, the taxable proportion is reduced progressively and eventually falls to zero from the fifth year following the year of acquisition.

Consequently, a property held for a sufficiently long period can generally be sold without Hungarian personal income tax on the resulting gain. This is substantially shorter than the former 15-year holding-period schedule.

Corporate Tax

Hungary applies a flat 9% corporate income tax (CIT) rate, one of the lowest headline corporate income tax rates in the European Union.

A Hungarian-resident company is generally subject to corporate income tax on its worldwide income, whereas non-resident companies are generally subject to Hungarian corporate taxation on income attributable to their Hungarian taxable presence, subject to applicable domestic rules and tax treaties.

Rental income earned by a company from investment property forms part of its taxable business profits. The taxable corporate profit is determined from accounting profit after the adjustments required under Hungarian corporate tax legislation. Qualifying expenses associated with generating the rental income are generally deductible, and tax depreciation may also be available for buildings.

Capital gains realized by a company from the sale of real estate are generally treated as ordinary corporate income and are therefore subject to the standard 9% corporate income tax rate.

In addition to corporate income tax, companies may also be subject to local business tax (LBT). The rate is determined by the relevant municipality but is capped at 2%. The LBT tax base differs from the corporate income tax base, meaning that the effective overall tax burden cannot simply be calculated as 9% plus 2%.

Buying and Selling Costs/Taxes

Property Holding Tax

Hungary does not impose a uniform nationwide annual property tax. Instead, municipal governments may choose whether to levy local building tax and land tax, meaning that the existence and amount of the tax depend on the municipality in which the property is located.

Consequently, local property taxation can be an important consideration when comparing investment locations within Hungary.

Building Tax

Municipalities may impose an annual building tax (építményadó) on residential and other buildings. The municipality determines the applicable rate and may calculate the tax using either:

• the floor area of the building, applying a fixed amount per square metre; or

• the building's adjusted market value, subject to a maximum tax rate of 3.6%.

The statutory per-square-metre ceiling is adjusted annually for inflation, meaning that the original HUF 1,100/m² statutory amount should not be treated as the current effective maximum.

Land Tax

Municipalities may also levy an annual land tax (telekadó) on qualifying plots of land situated within their jurisdiction.

The tax may be calculated using either:

• the area of the land, with a fixed charge per square metre; or

• the land's adjusted market value, subject to a maximum rate of 3%.

As with building tax, the statutory HUF-denominated per-square-metre ceiling is adjusted for inflation and therefore changes over time.

The actual property holding cost can vary considerably between municipalities, and some municipalities may impose no building or land tax at all. The applicable local rules should therefore be checked for the specific location of the investment property.