One of the sectors contributing the most to the Hungarian GDP is tourism, with nearly 16 million guests spending more than 41 million overnight stays in Hungary in 2023. According to the data of the Hungarian Central Statistical Office, foreign tourists spent 11,866,669 overnight stays in Hungary in 2023, of which 59.20% chose hotels, 32.36% stayed overnight in private and other accommodations, and 8.44% chose community accommodations.
Private and other accommodations in Hungary have always operated in a regulated environment. Currently, there are 30-35,000 such accommodations. A turbulent public discourse in June 2024 took place due to the sudden appearance of a large number of Airbnb accommodations. Currently, there are more than 14,000 such units nationwide, and there are districts in Budapest where most of the apartments sold will continue their lives as Airbnb apartments. Actually, this September a Budapest district decided to ban Airbnb-style short-term rentals.
The current regulation is unique even at a European level, with trends that can be tracked through an up-to-date database containing the mandatory daily data provision for private and other accommodations defined by law, and the legislature has also introduced a mandatory accommodation qualification. The Hungarian Tourism Quality Certification Board Nonprofit certifies accommodation as designated by the Hungarian government, as a task of national public interest, and the qualification procedure is carried out with the help of independent experts, taking into account a publicly available set of requirements. In addition, accommodation providers must declare their activities to the notary, but there is no authorization procedure. The accommodation provider must request an inspection and evaluation of the accommodation rating body prior to the notification of accommodation management activities. The procedure must also be repeated every three years after the initial certification in order to achieve a quality grade adapted to the requirements of the accommodation type. Depending on the grade, experts acting during this certification may inspect the criteria of cleanliness, maintenance, and accessibility, but depending on the grade, they can even check the regular cleaning of pillows.
In light of this unique regulation at a European level, it is questionable that further regulation is necessary. According to widespread reports in the news, one of the changes may affect the maximum annual opening hours of private and other accommodations – limiting them to 120-180 days per year, which caused an uproar among those affected, claiming that there is no reason for such restrictions in the tourism industry. It also raises issues on freedom of business and the violation of property rights.
What is known is that the Hungarian government has given the Minister for National Economy September 30, 2024, as a deadline to submit a proposal for amending legislation.
The question is how the amendment of the regulation may affect administrative and public burden-bearing obligations, which can already be considered extensive. These are: (1) a mandatory accommodation qualification as described above and compliance with it, which not only creates an administrative burden but also generates investment costs for the operator (renovation and maintenance costs); (2) daily data reporting obligation to the National Tourism Data Service Centre; (3) use of the Guest Information Closed Database; (4) hotels, private and other accommodation establishments operating in the form of companies pay tax equally, private operators are obliged to pay extra personal income tax; (5) public taxes are also included in the context of a tourist tax, a 4% tourism development contribution, a local building tax, and VAT. I note that the VAT on accommodation services has been reduced from 18% to 5%, but this has only reduced the burden of hotels, private and other accommodation operators, and individuals with tax numbers. Individual entrepreneurs are not subject to VAT; this way, the increase in burden for them can be identified in the 4% contribution payable on their income.
Several interest groups have made their voices heard in the context of the planned legislative amendment. All stakeholders agree that certain types of accommodation reach different clientele, so limiting Airbnb apartments would not necessarily mean an increase in hotel occupancy. Among the possible regulatory directions, many support the limitation of the rapidly growing number of new private and other accommodation facilities in such a way that (1) existing ones shall not be put at a disadvantage, (2) unlicensed provision of accommodation shall be cut down, and (3) in the case of hotels, payment of grey money to employees shall be precluded.
How the regulation will evolve is still fluid. However, I would like to raise one question: would a guest night spent by a foreign guest worker employed by a given company qualify as accommodation within the scope of the above public charges including tourist tax? If yes, is the guest worker actually staying permanently in the given accommodation? Should their place of stay be registered by the authority as an address? Currently, most local tax authorities consider this permanent stay to be overnight guest stays and oblige employers concerned to pay the tourist tax as accommodation providers. Whether this interpretation is legitimate may be answered by next summer.
By Orsolya Kovacs, Partner, Nagy es Trocsanyi
This article was originally published in Issue 11.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
