THE EFFECTS OF TERMINATION OF THE REDUCED VAT RATE RELATING TO NEW FLATS

Under the Hungarian VAT Act, from 1 January 2016 instead of the general VAT tax rate of 27%, a reduced tax rate of 5% is applicable to the flats to be constructed or existing in a multi-unit residential building with a total net floor space not exceeding 150 square meters. This provision of the Hungarian VAT Act will remain in force only until 31 December 2019, accordingly, after this date the purchasers will pay for these flats a VAT of 27%.

The termination of the reduced VAT regime may have a significant impact on the construction industry and the flat investments. There are already delays relating to the construction of new flats due to the lack of building materials and available workforce. In addition, the contractors are now in the position to choose rather the construction of office buildings than multi-unit residential buildings. Currently, there is less interest for the flats with a handover date of 2020 due to the VAT issues.

With respect to the above, purchasers should expect further delays in the handover of new flats and the increase of the purchase price of the new flats from 2020, therefore, they should act carefully by choosing a reliable investor.