Obligation to register, tax number
If a person in Hungary leases out property within the framework of an activity in compliance with the Act of VAT, this activity may be pursued as of August 16, 2010 without a tax number.
Value Added Tax
As a rule, the let of 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 his choice, it will bind him 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 a tax number.
Personal income tax liability
In case of real estate property not considered to be arable land, the income of the private individual generated by renting the property.
The rate of tax shall be 16% of the tax base.
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 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 individual’ 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 Act, lessee shall deduct, considering the private individual’s statement on reaching the upper threshold of contribution payment, a health care contribution of 14%.
- 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 12th day of the month following the relevant quarter.
Obligation to pay health insurance contribution
Private individuals resident in Hungary are obliged to pay 14% 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 adjusting the existence of insurance in another member state.
The 14 percent health care contribution can be deducted as cost if the taxpayer opts for tax payment according to the rules applicable to independent activities.
Source: National Tax and Customs Administration of Hungary