INVESTOR CENTER Taxes and Legal Procedures

Tax

May 26 2010 important update ---------- Stamp Duty in now 4% for residential and commercial.

Last partial update, May 2009

Hungary's taxation of an individual's income is progressive. In other words, the higher the income, the higher the rate of tax payable. In 2009 the tax rate in Hungary for an individual is 18% or 36% , There are reduced rates of tax for certain income earners.
Corporate tax in Hungary in 2009 is fixed at 16%. There is an additional 4% solidarity tax.
Corporate tax for income up to HUF 50 million is 10%, subject to certain conditions.

Hungary Individual Income Tax
An individual pays tax on his income as a wage-earner or as a self-employed person. Tax for an individual who meets the criteria of a "permanent resident" in Hungary will be calculated on his income in Hungary and abroad. A foreign resident who is employed in Hungary pays tax only on his income earned in Hungary.
To be considered a Hungarian resident, there are a number of criteria to be met, such as ownership of an apartment, the permanent place of residence of the family and the criterion of spending more than 183 days a year in Hungary.
An employer is obligated to deduct, immediately on a monthly basis, the tax payable on an employee's salary. A self-employed person must prepay income tax that will be offset on filing an annual return. The advance payment is determined on the basis of the return made for the previous year. In the event of a new business, the advance will be calculated on the basis of estimates made by the owner of the business.
Certain payments are deductible from taxable income as detailed below.

Hungary Individual Income tax rates for the year 2009 (HUF):

Tax base (HUF)	Tax
1-1,700,000	18%
1,700,001 and more	36% of base in excess of 1,700,000 HUF

There is an additional 4% solidarity tax for annual salary income above HUF 7,446,000.

Hungary Capital Gains
Capital gains in Hungarian companies are added to regular income. There is a participation exemption under certain terms .Dividend received by a Hungarian company is generally tax exempt .
Individuals pay 25% for capital gains and other investment income.
20% tax rate is paid on capital gains from sale of shares in EU and OECD markets.
Dividend income from shares in EU stock exchanges is taxed at 10%.
Interest income is taxed at 20%.

Hungary Reporting Dates
The tax year in Hungary is the calendar year ending on December 31st.

An Individual
If your income is only from a salary, you are not obliged to file an annual return.
An employer is obliged to deduct tax monthly at source from the wage of a hired worker. The tax deducted will be transferred by the employer to the Tax Authorities by the 12th of each month for the previous month.
An individual who is obliged to make an advance payment of income tax, will do so each month or each quarter, depending on the scope of his business.
The advance payment here too will be paid by the 12th of the following month.
The annual return for an individual including a supplement for any debt for tax arrears should be filed by March 20th of the year after the tax year.

A Limited Company
A company is bound to prepay tax during the year. The advance payments are determined on the basis of the figures for the previous year. In the event of a new company, the advance payment will be calculated according to the assessment of the profits forecast for the first year. A report on advance payments is filed once a month, if the tax forecast is in excess of HUF 3 million. If the tax forecast is less than this, the report is filed once every three months.
The date for payment is the 20th day after the period of the report (whether monthly or quarterly as stated). The company will pay the difference between the tax it forecast and the tax due for the current year by December 20th.
The date for filing an annual return is May 31st in the year following the year reported.

Hungary Corporate Tax

The rate of Hungary corporate tax in 2009 is 16%, plus a 4% solidarity tax

Hungary Taxation of Employees
The employer is obligated to deduct tax at source from a salaried worker and to allocate an additional sum for social insurance including pension, healthcare and unemployment.
The rates of tax are as follows:

	%
Employer	33.5
Employee	17

Hungary Dividend, Royalties and Interest
When payments of the above sorts are made to a foreign resident, the deductions at source are the following rates:

	%
Dividend	0
Royalties	0
Interest	0

important update - 2008

Personal income tax (SZJA) modification in Hungary, ruling the income generated by the property sales ...

Until the 1st of January, 2008
Two important factor:
1. after 15 year of possession payable tax is 0.
2. the income generated by the property sales could be endorsed into a new property sales with 0 tax to pay (free of tax).

From 1st of January, 2008
1. 5 years time after the property purchase, the income generated by the sales is not taxable anymore
2. to obtain a new property from the real estate sales income does not mean anymore that it would un taxable.

Summarized: if one purchases a property in Hungary it is beneficial to keep it in possession for 5 years time. Naturally possessing a property as a company holds the same corporate tax law. Here the tax base is the profit of the company: 16%.

Deductible from the Tax base for companies:
agent's fee
solicitor's fee
refurbishment costs

1. Stamp Duty

Stamp duty in Hungary has to be paid approximately 2-6 months after the purchase of property.

1.2 Stamp duty for residential properties

2% up to 4 million HUF of the purchase price

4% on the remaining amount of the purchase price

1.3 Stamp duty for commercial properties

4% of the purchase price

2. Tax on rent

2.1 Renting property as an individual

20% Note: profits may be taxable abroad though Hungary has double taxation treaties with most countries.

2.2 Renting property as a corporation

16% Note: all expenses, interest cost and some depreciation on the property and it’s contents are tax deductible.

3. Taxes on selling property

3.1 Individual is selling property - Personal income tax

25% (which reduces after 6 years). Note: This only applies to gains, that is the difference between the original purchase price of the property and the selling price.

3.2 Corporation is selling property - Corporate tax

16% Note: This only applies to gains, that is the difference between the original purchase price of the property and the selling price.

Hungary's taxation of an individual's income is progressive. In other words, the higher the income, the higher the rate of tax payable. In 2008 the tax rate in Hungary for an individual is 18% or 36% , There are reduced rates of tax for certain income earners.
Corporate tax in Hungary in 2008 is fixed at 16%. There is an additional 4% solidarity tax.
Corporate tax for income up to HUF 5 million, about EUR 20,00, is 10%, subject to certain conditions.

Individual Income Tax
An individual pays tax on his income as a wage-earner or as a self-employed person. Tax for an individual who meets the criteria of a "permanent resident" in Hungary will be calculated on his income in Hungary and abroad. A foreign resident who is employed in Hungary pays tax only on his income earned in Hungary.
To be considered a Hungarian resident, there are a number of criteria to be met, such as ownership of an apartment, the permanent place of residence of the family and the criterion of spending more than 183 days a year in Hungary.
An employer is obligated to deduct, immediately on a monthly basis, the tax payable on an employee's salary. A self-employed person must prepay income tax that will be offset on filing an annual return. The advance payment is determined on the basis of the return made for the previous year. In the event of a new business, the advance will be calculated on the basis of estimates made by the owner of the business.
Certain payments are deductible from taxable income as detailed below.

Hungary Individual Income tax rates for the year 2008 (HUF):

Tax base (HUF)	Tax
1-1,700,000	18%
1,700,001 and more	36% of base in excess of 1,700,000 HUF

Capital Gains
Capital gains in Hungarian companies are added to regular income. The rate of tax imposed on capital gains is identical to the tax on regular company income.
Individuals pay 25% for capital gains and other investment income.
20% tax rate is paid on capital gains from sale of shares in EU and OECD markets.
Dividend income from shares in EU stock exchanges is taxed at 10%.
Interest income is taxed at 20%.

Reporting Dates
The tax year in Hungary is the calendar year ending on December 31st.

An Individual
If your income is only from a salary, you are not obliged to file an annual return.
An employer is obliged to deduct tax monthly at source from the wage of a hired worker. The tax deducted will be transferred by the employer to the Tax Authorities by the 12th of each month for the previous month.
An individual who is obliged to make an advance payment of income tax, will do so each month or each quarter, depending on the scope of his business.
The advance payment here too will be paid by the 12th of the following month.
The annual return for an individual including a supplement for any debt for tax arrears should be filed by March 20th of the year after the tax year.

A Limited Company
A company is bound to prepay tax during the year. The advance payments are determined on the basis of the figures for the previous year. In the event of a new company, the advance payment will be calculated according to the assessment of the profits forecast for the first year. A report on advance payments is filed once a month, if the tax forecast is in excess of HUF 3 million. If the tax forecast is less than this, the report is filed once every three months.
The date for payment is the 20th day after the period of the report (whether monthly or quarterly as stated). The company will pay the difference between the tax it forecast and the tax due for the current year by December 20th.
The date for filing an annual return is May 31st in the year following the year reported.

Corporate Tax

The rate of Hungary corporate tax in 2008 is 16%, plus a 4% solidarity tax

...Taxation of Employees
The employer is obligated to deduct tax at source from a salaried worker and to allocate an additional sum for social insurance.
The rates of tax are as follows:

	%
Employer	33.5
Employee	17

...Dividend, Royalties and Interest
When payments of the above sorts are made to a foreign resident, the deductions at source are the following rates:

	%
Dividend	0
Royalties	0
Interest	0

There is an additional 4% solidarity tax for salary income above 7,137,000.

Double Taxation

Hungary is a signatory to a Treaty for the Prevention of Double Taxation with many countries all over the world.
Draft agreements with additional countries are at the discussion stages.
A Double Taxation Prevention Treaty, in principle, enables offsetting tax paid in one of 2 countries against the tax payable in the other, in this way preventing double taxation.
Another important factor is the grant of an exemption or tax at a reduced rate on certain receipts such as interest, royalties, dividends, capital gains and others that are connected with a transaction carried out between parties associated with the Double Taxation Prevention Treaty.
It is of the utmost importance to stress that the Double Taxation Prevention Treaty takes precedence over the Hungarian Income Tax Ordinance. In other words, if certain income is taxable under the Hungarian Income Tax Ordinance but there is an exemption (reduced tax) under any Taxation Treaty, the income is taxed, if at all, but only according to the provisions of the Taxation Treaty.

Double Taxation Agreements, February 2006

Albania	Australia	Austria
Belgium	Belarus	Brazil
Bulgaria	Canada	China
Croatia	Cyprus	Czech Republic
Denmark	Egypt	Estonia
Finland	France	Germany
Great Britain	Greece	India
Indonesia	Ireland	Israel
Italy	Japan	Kazakh Republic
Korea	Kuwait	Latvia
Lithuania	Luxembourg	Macedonia
Malaysia	Malta	Moldavian Republic
Mongolia	Morocco	Netherlands
Norway	Pakistan	Paraguay
Philippines	Poland	Portugal
Romania	Russia	Singapore
Slovakia	Slovenia	South Africa
Spain	Sweden	Switzerland
Thailand	Tunisia	Turkey
Ukrainian Republic	Uruguay	USA
Vietnam	Yugoslavia

Legal Procedure

Information for purchasing real estate in Hungary

There are many legal opportunities for property investments in Hungary, out of which the two offering the greatest number of economical advantages are the property purchase or investment as a private person and the purchase through a Hungarian company.

1. Purchasing as a private person

According to the Hungarian laws, foreign citizens have two possibilities to purchase real estates.
In the first case they undertake in the sales agreement to apply for the permission of the local self government allowing them to obtain the ownership of the real estate. This procedure costs HUF 50.000,- (approx. EUR 200,-) stamp duty, HUF 125.000 (approx. EUR 500,-) legal fee of the law office, the authorised copy of the passport of the buyer and it takes approx. 2 months until the permission is given.
If the foreign person decides to move to Hungary and have his primary residence there, he shall have the right to purchase the real estate serving for this purpose without the above permission. However, he has to sign a declaration in front of an attorney-at-law or a notary public stating that he is going to use this real estate as the primary residence which the authorities are entitled to check and punish if it is elsehow.

2. Purchasing through a company

In Hungary, every legal entity has the right obtain ownership. The most common company forms used by foreign persons for this aim are the Partnership (“Bt.”) or the Limited Liability Company (“Kft.”), both requiring at least two members.

The stamp duty to incorporate a Kft. is HUF 370,000 (approx. EUR 1500 inc. VAT), while in case of a Bt. it is HUF 220,000,- (approx. EUR 900 inc. VAT,-), and in addition to the stamp duties, there is also a notary fee for preparing the specimen of signature.
In case the members or the managing director do not have a Hungarian address, a Hungarian delivery agent having a Hungarian postal address is needed. The reason for this is that the mail coming from the authorities is not going to be delivered outside Hungary.

Partnership (Bt.)

The Bt. is a very simple company form, in which the so-called “general partner” who is entitled to represent and manage the company shall have unlimited responsibility, while the “limited partner” shall only be responsible up to the amount of the asset he put into the company. This company can be established with a very small amount of money (approx. HUF 20.000,-, corresponding EUR 80,-) and has a simple structure.

Limited Liability Company (Kft.)

In the Kft. members have liability up to the amount of their contribution undertaken in the articles of association, and, with the exceptions set forth in the Hungarian Company Act, is not liable for the obligations of the Company itself.
A Kft. can be founded with a minimum of HUF 3,000,000 (approx. EUR 12.000), of which at least HUF 1,500,000 (approx. EUR 6.000) needs to be paid in to the account of the company simultaneously with the establishment, while the remaining 50% is to be paid in within one year from the establishment.
A Kft. is managed by a managing director who can either be one of the members or a third person. The managing director is appointed for a period of maximum five years.

Documents to be prepared

Articles of Association of the company
Specimen of signature of the general partner or managing director of the company
Power of attorney from the general partner or managing director to a Hungarian law firm to act in the registration procedure of the company
Declaration of acceptance by the general partner / managing director
Delivery proxies to the delivery agent
Member’s list (in case of a Kft.)

Documents necessary for the preparation of the above documents

To prepare the necessary documentation, the following information must be provided by the founders:

Suggested name of the company (the law office setting up the company will check whether there is already a company having the same name with the same activity)
Address of the seat of the company
Rate of contribution of the members
Personal information relating to the members
full name
mother’s full maiden name
foreign address and Hungarian address (if any)
place and date of birth
citizenship
passport number
Hungarian tax identification number (if any) and Hungarian residency permit number (if any)
Personal information of the delivery agent (name, Hungarian address, mother’s full maiden name)
Contribution of the members of the company to the capital of the company

Registration process of the company

The registration procedure can be carried out by a Hungarian Law Office, and consists of the following steps:

The Hungarian law office prepares the documents described above (both in Hungarian and English language).
The specimen of signature is prepared in front of the notary public and in case of a Bt., the whole capital, in case of a Kft. at least 50% of the capital of the company is paid in to the bank account of the company.
The documents are handed in to the Court of Registration. The Court of Registration hands out a receipt, stating that the registration process started. It takes approx. 30 days until the resolution about the registration is made.
The company is registered at the Hungarian Tax Office and the Hungarian Statistical Office.
The company chooses a Hungarian auditor.

In the meantime (after having filed the documents to the Court of Registration and before the registration of the company) the company exists as a pre-company and has the right to obtain property.

3. Real estate purchase and registration of the ownership

Once the Court of Registry hands out the receipt proving the receipt of the company papers and the start of the registration procedure, or if the real estate is purchased by a private person, the preparation of the sales agreement can start.
The Parties agree on the purchase price and on the payment schedule and provide the attorney-at-law with their personal data to be included in the sales agreement.
The attorney-at-law proves the property sheet of the real estate, kept at the land Registry Office and informs the Parties, especially the Buyer of the state of the real estate, including the potential burdens on it.
The sales agreement includes the following provisions:
- personal data of the Parties (Seller and Buyer);
- exact lot number, address and size of the real estate;
- purchase price and payment schedule agreed upon by the Parties;
- take-over of the possession upon the payment of the total purchase price;
- security clauses;
- date, signature of the Parties and the countersigning attorney-at law.

The Buyer generally hands over 10% of the purchase price to the Seller as a deposit. The rest of the purchase price arrives to the escrow account of the law office, where the legal fee and the fee of the real estate agency are to be sent as well.

Upon paying the deposit, the fact of the sale to the Buyer shall be registered at the Land Registry Office with reservation of title. Upon the payment of the last part of the purchase price, Seller is obliged to issue the so-called „permission of registration”, on the basis of which the ownership right of the Seller shall be deleted and the Buyer shall be registered as the new owner of the real estate.

Should you have any further questions, please do not hesitate to contact our Law Office!

[Click here to go to LAW FIRM]

Investor Center

Featured Property