Due to the reasonable purchase prices of the Hungarian real estates it can be a very attractive investment opportunity for foreign individuals and companies regardless short or long-term investment is the purpose. In Hungary, the taxation of real estate rental services is very flexible. If you utilize your property providing real estate rental services in Hungary, you can reduce your tax base with several costs incurred in connection with your real estate.
In this article, we summarized the Hungarian tax rules of real estate rentals valid for individuals, private entrepreneurs and companies.
Content
1. Hungarian taxation of real estate rental services provided as a private person – long-term
1.1. Taxation of real estate rental services
1.2. What can be included into cost accounting?
1.3. How to pay tax advance payment?
1.4. When and how to submit tax declaration
2. Hungarian taxation of real estate rental services provided as a private person – short-term
3. Hungarian taxation of real estate rental services provided as a company or a private entrepreneur
1. Hungarian taxation of real estate rental services provided as a private person – long-term
We have to emphasize at the beginning that the Hungarian tax law prohibits to use KATA tax – which is the most popular and optimal taxation method for many startup and small businesses – for real estate rental services!
A sublet transaction or any real estate rental can happen with issuing an invoice or an accounting document.
Usually a private person has to issue invoice about real estate rental services if the subtenant (private person or company) would like to account or deduct the costs incurred. In this case the private person landlord has to request for a tax number at tax authority submitting form T101. From the aspect of value added tax usually real estate rental is a VAT exempt business activity. To be able to issue invoices the landlord needs to buy pre-printed invoices or an invoicing software.
In other cases, it is not necessary for the private person to request for a tax number assuming that this activity is not carried out on commercial scale. The private person landlord is obliged to issue an accounting document about the rental fee received.
1.1. Taxation of real estate rental services
The rental fee received from real estate renting is considered as the private person’s individual income from independent activities. For such incomes, private persons are obliged to pay tax:
- using 10 % cost ratio, so 90% of the income will be considered as tax base. On this income you have to pay 15% social security tax and on the total income over HUF 1 million 14% health care contribution (health care contribution is maximized to 450.000 HUF / year, the contributions paid to health insurance are included in this value limit)
- you can apply cost accounting up to the total revenue (except during the year if it is rented by a company, we can apply only 50% cost ratio), deducting the costs from the revenue we can pay the taxes calculated from the tax base. Usually overheads are part of the revenue so in this case they are also deductible from the revenue. In this calculation method on the income you also have to pay 15% social security tax and on the total income over HUF 1 million 14% health care contribution (health care contribution is maximized to 450.000 HUF / year, the contributions paid to health insurance are included in this value limit)
1.2. What can be included into cost accounting?
- rental fee of a real-estate situated in another city or country which was paid in the same year (based on rental agreement and remittance advice)
- overheads
- depreciation and renovation costs of fixed assets relating to the real estate
- depreciation of the real estate buildings
- expenditures spent on the repair, maintenance and renovation of fixed assets in order to ensure their continuous, smooth and safe operation
About the costs private person must have invoices addressed to the private person with the address of the real estate rented.
1.3. How to pay tax advance payment?
The landlord private person – who provides private persons with real estate rental services – is obliged to pay tax advance payment not later than the 12th of the month following the quarter. In case companies are provided with the real estate rental services the companies are obliged to deduct the tax amount from the rental fee and pay the advanced tax payment to the tax authority. So in this case not the landlord is obliged to pay the advanced tax payment.
1.4. When and how to submit tax declaration
Private person is obliged to declare the revenue from sublets in the yearly social security tax declaration not later than on the 20th of May following the reference year.
2. Hungarian taxation of real estate rental services provided as a private person – short-term
For short-term renting private persons are obliged to require a tax number (EU tax number is recommended also). The tax number can be requested via form T101 but foreign private persons has to request for a tax identification number first which is not the same as the tax number. Tax identification number can be requested with form T34.
Commercial accommodation services (like Airbnb) are considered as real estate rental in the system of value added tax. As a rule real estate rental is a tax exempt service but this tax exemption does not extend to the tourism related utilization of real estates so in this case 18% VAT must be charged on this service. The only exception is when tax exempt status was selected up to the value limit of HUF 8 million.
Its taxation can happen as private person’s individual income from independent activities or with flat tax. The amount of the flat tax is HUF 38.400 / room / year which must be paid quarterly on the 12th day of the month following the quarter. Usually we recommend to use the taxation of private person’s individual income from independent activities when you are considering on investments on the real estate.
Private persons are also obliged to pay tourist tax (HUF 400 / night) which is a local tax. To become the subject to local tax you have to register yourself at the local government. The floor plan of the real estate is required for the registration.
3. Hungarian taxation of real estate rental services provided as a company or a private entrepreneur
In case of companies and private entrepreneur’s real estate rental services are VAT exempt activities so it is recommended to register to be subject to VAT at the beginning of the activity. Of course, it is true only if real estate rental will be the core activity and the real estate will not be rented by private persons. To be able to manage private tenants it is recommended to establish another business entity because effective and optimal taxation structure can be achieved only in this way.
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