Fall and the new school year is on us. This is the season for new rentals and rental renewals, so we prepared a quick summary about rentals, taxes, and VAT on rentals in Hungary.
Taxes depend on who is renting out the property
As a rule of thumb, the taxes you pay depend on the tax regime you are subject to, which in turn depends on what type of legal person you represent. When it comes to rentals in Hungary, landlords usually belong to the below categories:
- private persons
- freelancers
- companies
VAT on rentals in Hungary
VAT is one of the most important taxes in Hungary, as it covers around one fifth of the yearly government budget. Whether your rental will be a subject to VAT is strongly tied to the legal person you represent, but there are other factors to consider.
VAT and the type of rental
Another important factor when determining taxes for rentals is the type of rental.
- Regular, long-term residential rentals are not subject to VAT by default.
- Short-term residential rentals, however, are subject to VAT.
It is worth noting that sometimes not only residential property is up for rent. Sometimes the property comes with an option for a parking space or even a separate parking garage. Renting these spaces is subject to VAT whether they are rented out for short or long term.
VAT and the landlord
Since long-term residential rentals are not subject to VAT by default, private persons and freelancers who are not VAT subjects will not become VAT subjects just because they are renting out property. Freelancers must watch out, however: the income from rentals in Hungary counts toward their VAT-free limit (HUF 12 million, ca. EUR 30,000), and if they reach it, they cannot opt out from paying VAT anymore.
Companies are usually VAT subjects in Hungary. However, Since long-term residential rentals are not subject to VAT by default, companies may pursue this activity VAT free.
Both freelancers and companies may decide to rent out property as a VAT subject – this may be beneficial to them if they want to deduct VAT from their costs. In that case, the standard 27% VAT applies. The company should make a declaration of their intention before starting this activity, and if they become a VAT subject, they cannot leave the scheme for 5 years.
VAT and utilities
Utilities are usually billed to the owner of the rental, but these costs may or may not be included in the monthly price. If utilities are billed separately, they must be billed the same way as the rental. As a result:
- If the landlord is not a VAT subject, the utility bill they issue to the tenant should be VAT free too
- If the landlord is subject to VAT, the utility bill should include the same 27% VAT that is paid as rent
Short-term rentals
Since short-term rentals are considered in the hospitality sector, hospitality related taxes apply to them.
- One is the Tourist tax or “idegenforgalmi adó” (“IFA” for short). This is a local tax which is at most 4% of the income, but the actual sum depends on the local municipality (they may decide to waive it).
- The other is the Tourism Development Contribution (“turzimusfejlesztési hozzájárulás”). It is also 4% of the income, and it is to be paid directly to the Tax Authority.
These taxes are not applicable to long-term rentals.
Other taxes on rentals
Other types of taxes on rentals in Hungary depend on the legal person you represent.
Private persons
Private persons pay a 15% personal income tax. The income can be calculated as either the 90% of the revenue, on by deducting expenses related to the rental, e.g. renovation, cleaning, equipment.
Freelancers
Freelancers calculate income and pay taxes in line with the tax regime they belong to. This regime will certainly include a 15% personal income tax and a 13% social contribution tax.
There are several tax regimes available, and the benefits they offer depend on your other activities. For example, flat-rate taxation is most favorable to tax-payers who have a full-time job beside their self-employed activities or who are already retired.
Companies
Companies calculate income and pay taxes in line with the tax regime they belong to. This regime will probably include the 9% corporate tax (which is the lowest in the EU). Additionally, you can expect a 15% dividend tax and a 13% social contribution when you receive money from your company.
Consult an expert and get help planning your ventures in Hungary
Paying the right taxes after rentals in Hungary requires considerable insight. An experienced accountant can help you make sure you remain compliant with regulations and pay all your taxes on time.
Helpers provides services related to business setup and accountancy. Additionally, our experts can help you determine what is the best course of action to make your business a success in Hungary.
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