Changes to Hungarian real property taxation in 2023

Major changes have come into force under the 2023 tax law amendments in Hungary, which mainly include reliefs, such as the extension of the application of the 5% VAT rate on the sale of new housing on the one hand, but on the other hand, bring restrictions to real property related duties.

The applicability of the reduced VAT rate on the sale of new residential property has been extended to 31 December 2024. This reduced rate will continue to apply after 31 December 2024 to projects already started (until 31 December 2028), provided that the building permit has become final no later than 31 December 2024 or the construction has been notified by that date in accordance with the simple notification rules. The reduced VAT rate can be used for new real property that has not yet received its occupancy permit, or the occupancy permit was issued less than two years prior to the date of sale, or the total useful floor area does not exceed 150 square meters in the case of multi-family dwellings or 300 square meters in the case of detached houses. It is important to note that premises which are not necessary for the normal use of the dwelling (and thus do not qualify for the reduced VAT rate of 5%) are not classified as part of a housing property, even if they are built together (in particular garages or workshops).

Additionally, the rules on the reverse charge were clarified as well. As a result of the amendment starting from 1 January 2023, all construction, installation and other assembly works for the construction, conversion and change of use of real property that is subject to an official permit or notification will be subject to reverse charge.

The amendment also brought restrictions on the exemption from property transfer duty on immovable property transactions between affiliated companies. Starting from 1 January 2023, the buyer's main business activity must be the rental or operation of owner-occupied, rented or leased real estate, or the sale of owner-occupied real estate and its turnover from these activities (in the previous year) must represent at least 50% of its total turnover. The party acquiring the property must declare to the tax authorities that it meets the criterion relating to the turnover. If the declaration is not fulfilled, the transferor must notify the state tax authority, which will impose an additional charge of 50% on the transferor for the unpaid tax. If the transferor fails to comply with this obligation and the State Tax Authority establishes in the course of a tax audit that the declaration or undertaking has not been fulfilled, the transferor is liable to pay twice the amount of the unpaid tax.