Q: Can EU citizens buy property in Budapest ?
A: Yes. There are no restrictions on EU citizens or European countries in the EEA (European Economic Area - http://en.wikipedia.org/wiki/European_Economic_Area ) purchasing residential or commercial property. There are however restrictions on arable land.
Q: Can Non-EU citizens buy property in Budapest ?
A: Yes. A foreign investor can choose one of the following solutions:
• To apply for a permit to buy as a private person. The permit for a first purchase is normally given without any problems.It takes approximately 2-3 months. However, permits for private persons tend to be denied if buyer already owns property in the same district, for it is considered speculative buying.
• To establish a Hungarian registered company owned by the foreign investor himself. The cost of this action is approximately 900 euros to set up and approximately 900 euros per year to run the company.
If a permit is denied for a private person, then three things may be done:
1) Establish a company
2) Buy the property under the name of a relative or friend, and
3) File a lawsuit against the Administration Office of the Capital City , and re-apply for a permit. In any case a new contract must be signed with the seller, for the original contract automatically loses its validity.
The advantages of buying property through a Hungarian registered company are:
• This is the fastest way to buy a property, the registration process is short and once the company is registered there are no limitations when buying properties in Hungary (The Company must be fully registered before buying the property).
• The possibility of planning and reducing you tax liabilities when selling the property in the future.
• All outlays relating to the flat can be recognized as expenses, including flight, accommodation, legal & agency fees, purchase duty, renovation costs, furniture, utilities, and all associated services.
• If the flat is sold within 2 years of the purchase, the purchase duty amounts to 2% instead of approximately 4%.
Summary - Company Vs. Individual
Individual :- a foreign individual is not allowed to purchase more than two properties in Budapest;- an individual can not trade with properties for the purpose of profit making;- stamp duty: up to HUF 4.000.000 it is 2%, above that it is 6%;- 25% personal income tax is payable on the rent fee- expenses can not be deducted - after selling the property 25% of the selling price is payable as personal income tax if the individual does not purchase another property until the next tax return is due.
If a private individual sells a constructed structure registered or in the process of being registered in the register of the real property supervisory authority as a detached house or a residential suite and the land on which it is located, income from such transfer comprises:
100% of the calculated amount in the year of acquisition and in the following year,
90% of the calculated amount in the second year following the year of acquisition,
60% of the calculated amount in the third year following the year of acquisition,
30% of the calculated amount in the fourth year following the year of acquisition,
0% of the calculated amount in the fifth year following the year of acquisition and in any subsequent years.
Based on the above, if a private individual sells, in 2010, a dwelling house purchased in 2005 or before, no taxable income is generated.
Company :-stamp duty: up to HUF 4.000.000 it is 2%, above that it is 4%; if the owner is willing to resell the property within two years then a 2% stamp duty allowance applies -local government tax (helyi iparűzési adó): 2% of the positive tax base-corporate income tax (társasági adó): 16% of the positive tax base-owner’s loan: the purchase is most likely financed by owner’s loan. The amount of owner’s loan can be taken out of the company later on without having to pay any tax on it. Interest may be charged on the loan but the rate of interest can not exceed the base interest rate determined by the Hungarian National Bank (at the moment it is around 6,5%). Furthermore, interest can be charged only on treble of the amount of share capital which is in most cases 3 X HUF 3.000.000 = HUF 9.000.000
- the profit can be withdrawn from the company after taxation but in this case withholding tax must be paid. The rate of withholding tax differs by countries. (Ireland: 15%)
Q: Do I have to pay a yearly property tax?
A: As an individual the answer is no apart from District I and XI, as a company it depends on the district but it is circa 1 000 HUF/ m2 per year. This would mean circa 350 EUR per year for a 100m2 flat.
Q: How complicated is it to establish a company?
A: Not at all. It is a routine procedure, which can be completed within a day. A property management agency, a lawyer and an accountant will take care of all the formalities; from the owner's point of view there is practically no difference between corporate or private ownership. The lawyer will need the name of the new company, its seat, and the personal particulars of the owners of the shares. After the Articles of Association are prepared, specimens of signature need to be signed in front of a public notary, and then a bank account must be opened. Then all the documents, forms, authorizations and invoices must go to an accountant who will take care of all the administration and prepare regular reports. Make sure all invoices, whether issued abroad or in Hungary , contain the name and address of your company, because this is the only way to account for expenses.
Personal presence in Hungary within 3 months is required to open a bank account.
Q: Do I have to register for Hungarian social security if I am the managing director of a Hungarian company?
A: No, it is not necessary. Investors ask this question because of the high social security tax (44% of the salary) and other taxes to be paid after each employee. A company does not need to have employees; it can operate through subcontractors, who invoice the company for their services.
Q: Do I have to pay income tax when selling property?
A: Yes. When the company sells its property a 16% (down from 18% in previous years) corporate tax on the profit must be paid as well as a 20% capital gains tax. When calculating the profit of the company you can deduct from the profits the annual amortization of the flat (2%-5% per year), as well as all the expenses that the company had in relating to the specific property. If a company has more then one property, the expenses will be deduced whenever income is generated (usually when selling the first property) In case of an individual it is only 20%. However, there is less possibility to account for expenses; there is no annual amortization, only after the 6th year is the tax base reduced by 10% annually.
Q: What are the best areas to invest in right now?
A: The rapidly developing 6th, 7th, 8th, 9th, and 13th districts of Pest around the central 5th district. Especially the encircling boulevard (korut) and Andrassy ut. More specifically the central (western) areas of the 6th and 7th districts.
The 6th district boasts the famous Andrassy Boulevard , Heroes' Square, the trendy Oktogon and Liszt Ferenc Squares with their cafes and restaurants, a favourite area among foreign tenants. The 7th district, the traditional Jewish Quarter behind the Great Synagogue, has seen tremendous investment recently, with buildings renovated rapidly and parks cleaned up beautifully. The 8th and 9th districts are where the universities are located with many foreign students who are looking for flats to rent, especially along the blue metro line. The 9th and 13th districts have seen a lot of new development projects recently. The other side of the Danube (Buda) is best for buying land and developing, not so much for "second hand" flats, although the 11th district in Buda resembles Pest the most in this respect.
Q: What capital gains can I expect in a year?
A: 5%-15% per year in the above mentioned locations.
Q: Which flats are the easiest to rent out?
A: Highly renovated, fully furnished flats in central areas. The higher the standard of renovation, the more it appeals to the western tenant, who is ideally a businessman, a diplomat or a foreign student.
Q: What is the anticipated rental income?
A: You can expect to receive an 5% - 7% per year of the value of the flat (dependent on the location and the condition of the flat).
Q: What is the tax on rent?
A: If the flat is owned privately (not by a company), then it is 20% of the rental income when renting a residential property to an individual or a business. Foreign nationals must apply for a tax ID and issue an invoice to the tenant. Companies only pay the 18% corporate tax on profits.
Q: What are the prices of flats per square meter in Budapest ?
A: Landmark properties: 2200-4600 euro/sqm, 1600-2200 euro/sqm for good areas, and around 1000-1600 euro/sqm average. It is possible to buy run-down flats for 850-1000 euro/sqm.
Q: How much is the down payment when I want to buy securing a flat?
A: 10-20% of the purchase price into an escrow account held at the law office in Hungary.
Q: What is the inflation rate in Hungary?
Q: What is the GDP - real growth rate?