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:: FAQ
Q: How can foreigners purchase property in Budapest?
Q. What are the Advantages and Disadvantages of buying as a private individual vs. as a company?
Q: What are the steps in buying a property
Q. How complicated is it to buy as a private individual?
Q: How complicated is it to establish a company?
Q: What are the legal expenses of establishing and running a company?
Q: Do I have to register for Hungarian social security if I am the managing director of a Hungarian company?
Q: What are the additional expenses when buying an apartment?
Q: Do I have to pay income tax when selling property?
Q: Which properties are the easiest to rent out and / or sell at a later date?
Q: What is the anticipated rental income I can expect to receive?
Q: What is the tax on rent?
Q: What's the accepted management fee for a rented apartment?
Q: What is the accepted commission when renting an apartment through an agency?
Q: How can foreigners purchase property in Budapest?
For a foreign investor who wants to purchase real estate in Budapest there are two ways to proceed:
- The buyer can apply for a permit as a private person, which means submitting an application to the local authorities to acquire the properties(s). The costs associated with the procedure is approximately €250
- Foreign buyers can establish a local Hungarian company, usually a limited liability company. This is preferable if the purchaser wishes to acquire multiple properties.
Q. What are the Advantages and Disadvantages of buying as a private individual vs. as a company?
As a Private Person : The application for a permit can be denied though it is unlikely as EU integration rapidly approaches, but it will take approximately 2 -3 months. If a requested permit is denied it is still possible to establish a Hungarian limited liability company to acquire the property. The disadvantages of buying a property, as a private individual is that it is presently impossible to acquire more then one property as a private individual and writing off expenses related to the property can be more difficult as well.
Establishing a Company: The advantage of buying property through a company is that it saves time. In addition to this all expenses relating to the apartment can be written off (e.g.) travel, accommodation, legal & agency fees, purchase (stamp) duty, renovation costs, furniture, utilities, and all associated services, including the interest on the purchasers loan. Under this approach, the company can be sold along with the property, which makes it attractive for future buyers, as no purchase duty needs to be paid. The only disadvantage is that the company shall require an accountant and need to submit annual reports; we can assist with this issue though. One disadvantage is that the company shall require an accountant and need to submit annual reports; Hungarian Investment Properties Ltd. can assist with this issue though.
Q: What are the steps in buying a property
- Upon finding a property that you like the first step is to start initial negotiations with the seller. (In most cases sellers are willing to lower their initial asking price but it is rare for a seller to go lower then 3 to 5% from the initial price).
- When the price and conditions are agreed upon verbally with the seller the next step is to have a Hungarian registered lawyer start drafting the buy-sell agreement. In order to do this and ensure that the property is taken "off the market" the buyer should leave Euro 1 000 to start this process. This is not a fee but an initial deposit (applied to the price of the property) that does two things (a) ensures that the property is no longer available to other potential buyers (b) this eliminates the need to have 10% of the sale price (in cash) when securing the property.
Note: the real estate market in Hungary, but especially in Budapest is very fast, not securing a property that you like in time has meant that some clients either lose the opportunity to bid (as the property is sold) or are drawn into a biding war with other buyers.
- Usually the buy – sell agreement that are signed include 2 main payment periods for the property. The first is usually within a week to 10 days of signing the intent to buy-sell the property and is equal to 10% of the agreed prices. Hungarian law protects buyers that place this initial deposit in that if so whatever reason the seller backs out of the contact he/she is obliged to pay 2 x s the deposit. The difference usually needs to be paid in full 30 to 45 days of signing the intent to buy-sell the property. Payment of this can be stipulated upon certain conditions being met inside this time period though. Examples include: concluding certain required work, installation of appliances, providing the buyer requested documentation, etc.
- Another technicality that we recommends taking care of before leaving Budapest is going to a notary public and certifying the buyers identity from his/her passport. The issue with the public notary can be done at any Hungarian embassy or consulate but opening hours vary. The price abroad for this service is much higher then doing it locally. This is a prerequisite to either buying property as an individual or in establishing a company.
Q. How complicated is it to buy as a private individual?
To buy a property in Hungary is straight forward and will require the following to be done:
- Appointing a Hungarian legal representative and placing the initial deposit of Euro 1 000/property
- Going to a notary public and certifying the buyer’s identity to initiate the permit approval process. If the permit is refused (which is a remote possibility) establishing a company is the next suggested option – see below. The issue with the public notary can be done at any Hungarian embassy or consulate but opening hours vary the price abroad for this service is much higher then doing it locally.
- Signing the buy-sell agreement is can be taken care of in your home country if time is an issue whereby the agreement is signed by yourself and then mailed / DHLd to your local legal representative.
Q: How complicated is it to establish a company?
Establishing a company in Hungary is a routine procedure, which can be completed within a day. The basic procedure is as follows:
- The company’s Articles of Association needs to be signed in front of a lawyer*.
- The lawyer will also need the name of the new company, its seat, and the personal data of the owner(s). The founding capital of a Limited Liability Company is HUF 3M or Euro 12, 000 – this amount can be applied to the purchase of the property.
- After the Articles of Association are prepared, specimens of signature need to be signed in front of a public notary, 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 begin to prepare the required reports.
*Note: It is not necessary to be in Hungary in order to sign the Articles of Association; the procedure can be done at any Hungarian Embassy abroad BUT this can be a slow process.
Q: What are the legal expenses of establishing and running a company?
The initial fee is HUF 250 000 or approx. Euro 1 000 plus 25% VAT. There is an annual fee of about HUF 10 000 or approx. Euro 40 plus 25% VAT, for accounting and tax purposes if the company is not actively trading.
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: What are the additional expenses when buying an apartment?
All in, these expenses are approx 8 to 10% of the sales price. This includes:
- 6% purchase duty (stamp duty) - this is paid 6 months after closing. Note: there is no stamp duty on newly built apartments below HUF 30m (approx. EURO 120 000)
- 1.5% solicitor's fee
These are in addition to the costs associated with establishing a company, renovating, and furnishing an apartment.
Q: Do I have to pay income tax when selling property?
As a Private Person: In this scenario the tax incurred is only 20%. However, it is more difficult to account for expenses, there is no annual amortization on the property and only after the 6th year of ownership is the tax base reduced by 10% annually. It may be possible to deduct the costs of travel and service fees that are associated with the property as part of your global income; we suggest that you consult a tax advisor in the country where you pay taxes. Hungary has long standing double taxation treaties with most countries making this situation fairly straightforward.
As a Company: Yes, if a company sells its property 18% of any profit (after expenses incurred relating to the property) must be paid as tax plus 20% of what's left if money is withdrawn as income (dividend). After the 18% corporate tax is paid, we’re left with 82% of the profit in the company. 20% of 82%, that is 16.4% must be paid as dividend tax. Please note that the purchase price shall be further reduced with the annual amortization (2% or 5% per year), as well as other expenses, fees relating to the property.
Q: Which properties are the easiest to rent out and / or sell at a later date?
Older Apartments: Renovated, fully furnished apartments in central areas – Districts V, VI, VII, IX and XIII in Pest and Districts I, II and III in Buda. The higher the standard of renovation, the more it appeals to the high quality, long term, western tenants. Ideally these tenants are business people, diplomats, or foreign students.
New Apartments: Apartments that are well located, near transport hubs (be it roads or public transportation) near areas that are of interest for the tenant (offices, universities, parks, etc). New builds have the advantage of having extended payment terms which means that the buyer can pay over time and sell when the property prices have increased further. Furthermore, new build apartments are guaranteed for 5 years after completion, which older apartments are not.
Remember – renters will have to want to live in the apartment. If the area around the property is not appealing to renters there is a high chance that the property will remain vacant.
Q: What is the anticipated rental income I can expect to receive?
Euro 400 for a small 40-60 sqm flat, Euro 700 and up for a larger two-bedroom apartments; this excludes utilities that will be paid by the tenant. You can expect an annual rental yield* of between 6 and 9%.
*NOTE: This calculation is in HUF terms, so in Euro or USD terms, the yield could actually be higher as the HUF has shown unquestionable strength against other major currencies in the last few years. For example, the HUF has increased by some 35% against the USD since the summer of 2000.
Said another way, not only will the value of the underlying property increase in value but holding a HUF denominated asset which generates income (monthly rent) in HUF will further magnify the value of your holdings in Euro or USD terms.
Q: What is the tax on rent?
If the apartment is privately owned (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; we can assist in this as well. As a company there is only an 18% corporate tax on any rental profits.
Q: What's the accepted management fee for a rented apartment?
A: 10% of the monthly rent.
Q: What is the accepted commission when renting an apartment through an agency?
One month's rent plus 25% VAT paid upon signing the contract if the apartment is rented for a year.
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