Discounted VAT rate for Real Estate Transactions in Hungary

During the last few years, investments in real estate have taken off in Hungary, also thanks to some important government measures which reduced the normal VAT rate applied on newly-built homes.

As a general rule, the transfer of real estate is exempt from VAT. That said, in most cases, some exceptions to the general rule applies, and the transaction qualifies as taxable supply under the Hungarian VAT rules.

For instance, the sale of a new property is an exception that make such transaction subject to VAT.

For the purposes of the Hungarian VAT law, a new property is defined as a property that has not yet been put into operation or less than two years have passed since either the date of the occupancy permit became final and enforceable and the date of the official certificate confirming completion of the property was issued.

While in Hungary the standard VAT rate is 27%, in order to ignite the property market and to add extra impetus to the local construction sector, the Hungarian government substantially decreased the VAT rate for the sale of new residential property from 27% to 5%, as from 1 January 2016 until 31 December 2019.

The discounted VAT rate applies to apartments with a useful floor area of up to 150 sqm, and to family houses with a useful floor area of up to 300 sqm.

As the 5% VAT rate is set to remain in place until December 2019, this is the perfect time to make a step on the property ladder in Budapest, being not in the plans of the local government to extend further such measure after the deadline.

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