Taxes

In Hungary, profits from selling a property form part of taxable income. Under this liability to pay tax, foreigners are also taxed when they sell their Hungarian property, as the tax rules of the country where the property is located must be regarded as normative.
The tax percentage in question is a maximum of 25%.
The obligation to pay tax only relates to the PROFITS from selling the property. That means that when selling his property, the vendor can only be liable to pay tax when an income, i.e. a profit, is generated from the sale.
When calculating the profit, one must take into account the costs approved by the state and the length for which the property was owned.
In the event of income generated by the transfer of the property, the transferring party (if it is a natural person) can deduct the following:
- the purchase amount and other costs related to that;
- any items that increase the value, demonstrated by invoices;
- the costs involved in the transfer.
The income minus the aforementioned deductable expenses forms the remaining sum (the taxable basis). It is possible for the taxable basis to be corrected, following a check of the period of ownership. The significance of the period of ownership for “residential property” (house, apartment) differs from that of all other types of property.
In the case of “residential property”, any income will be taxed at 25%, following deduction of the costs. This amount can be changed to such an extent within 5 years that the actual tax to be paid:
* is 100 per cent (of 25 %) in the year of purchase and the subsequent year;
* is 90 per cent (of 25 %) in the second year after purchase;
* is 60 per cent (of 25 %) in the third year after purchase;
* is 30 per cent (of 25 %) in the fourth year after purchase;
* is 0 per cent as from the fifth year after purchase.

In the case of property that cannot be classified as “residential property”, the entire taxable basis (“profit minus certain costs”) will be regarded as taxable amount up to 5 years after the purchase. It is only between 6 to 15 years following purchase of the property that the taxable amount is reduced by 10% on an annual basis.
The profits will be tax-free 5 years after the purchase of “residential property” and 15 years after the purchase of other properties. The property ownership period starts when the relevant purchase contract or other agreements are submitted to the land registry office.
As indicated above, tax stands at 25% and this may fall to 0%.
However, there are a number of important exceptions.
- If a natural person sells 4 or more properties within two years, tax law will regard this as business activities (business sale) and in that case, the natural person will be taxed according to the general tax standards.
- In the case of business sales, the natural person will change to a VAT-registered natural person. For instance, if the properties he has sold do not come under VAT-free objects, the natural person will be faced with VAT returns and VAT payment obligations.
- If the property is sold above market value, the natural person will have to pay tax on the amount that exceeds that market price, in accordance with the general tax rules.