Taxes payable by persons renting real estates – 2017

Obligation to register, tax number

If a person in Hungary leases out property within the framework of an activity in compliance with the Act on VAT, this activity may be pursued without a tax number.

Value Added Tax

As a rule, leasing out immovable properties, with the statutory exceptions, qualifies as a VAT-exempt activity, which means that the lessor shall not pay VAT on this activity. However, the lessor does not have the right of VAT deduction, either.

In terms of VAT exempt let, the taxable person has the right, subject to the prior notification of the Tax Authority, to opt for VAT taxation (which, in turn, means that he also has a right of VAT deduction). Opting for VAT taxation may, depending on the taxpayer’s decision, pertain to all types of immovable properties that are being let or only to a restricted scope of such properties: immovable properties other than residential buildings. If a taxable person made their choice, it will bind them until the end of the fifth calendar year following the year of this choice. In this case, the private person concerned shall register with the tax authority through form “T101” and apply for ¹ a tax number.

Personal income tax liability

In case of real estate property not qualifying as arable land, the income of the private individual generated by renting the property is an income from independent activities and is a part of the consolidated income.

The rate of tax shall be 15 percent of the tax base.

Income generated from renting a property is either 90 percent of the revenues (rental fee + reimbursed utilities costs) or the actual difference between revenues and actually incurred and substantiated costs.

Private individuals pursuing this activity as private entrepreneurs cannot exercise this option.

Taxpayers must pay tax advance on their income from leasing immovable properties already during the tax year. The available two alternative options are as follows:

• If the lessee qualifies as a payer (e.g. a business association or a self-employed individual), lessee shall deduct from the private individual, depending the private individuals’ statement, a tax advance from the income in compliance with the rules on independent professional activity and, if the private individual concerned is resident under the Social Security Act² – and the income in question equals or is more than 1 million HUF, the lessee shall deduct, considering the private individual’s statement on reaching the upper threshold of contribution payment, a health care contribution of 14 percent.

¹ Form could be submitted in two hard copies in the territorially competent first instance tax authority or by electronically through the Client Gateway.

• If the lessee is not a payer or if the tax, tax advance and/or the health insurance contribution was not deducted for any reason, the lessor is obliged to pay these amounts by the 12^th day of the month following the relevant quarter.

Obligation to pay health insurance contribution

Private individuals resident in Hungary are obliged to pay 14 percent in health insurance contribution on the entire amount of their income in excess of HUF 1,000,000 originating from the lease of immovable properties. This obligation continues to apply up until the upper limit pertaining to compulsory contributions (HUF 450,000) is reached.

The private person is not obliged to pay health insurance contribution after his income got from another member state being subject to community regulation. The exemption from the obligation to pay health insurance contribution is certified by the private person with a certification issued by the competent foreign authority evidencing the existence of insurance in another member state.

The 14 percent health care contribution cannot be accounted as a cost.

² Act LXXX of 1997 on the Eligibility for Social Security Benefits and Private Pensions and the Funding for These Services