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Real Estate-Related Tax Changes from 1 January 2023

Real Estate-Related Tax Changes from 1 January 2023

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In mid-October 2022, a new bill has been submitted to the Parliament on the amendment of certain tax provisions in relation to real estates. The bill, on the basis of changes in the building regulations, clarifies the definitions of the properties under construction and built-on new properties. Thus, a built-on new property means also a property for which an occupancy permit was already issued, but then, its use or the number of its units changed (e.g. it was converted from a flat to an office) and 2 years have not yet elapsed until its sale. These properties will be sold subject to VAT.

One of the conditions for the application of reverse taxation in respect of the construction-installation works is that the creation, extension, alteration or other modification of the property is subject to a building permit (or subject to a procedure for obtaining the acknowledgement of the building authority or a simple notification). However, under the building regulations, many works have been exempted from the building permit in the recent years and thus also from reverse taxation. Therefore, as a result of the amendment of the VAT Act, reverse taxation will also apply to works for the creation, extension, alteration or other modification of the property, where a building permit or simple notification is not required, but the execution of the works requires other permit or notification of the authority.

Another change relates to the transactions between affiliated companies. The transfer of real estates between affiliated companies is exempt from the property transfer duty. Under the current rules, the condition of the exemption is that the acquirer's main business activity should be “the leasing or operation of own or rented property or the sale of own property”. This requirement needs to be met only at the time when the duty payment obligation arises, and the rule can therefore be circumvented by a formal act of the court of registration (by the registration of the change of the main activity). In order to prevent this, the new rules will require that 50% of the turnover should come from the aforementioned activities or one of these activities in the total turnover of the acquirer for the application of the exemption.

If adopted by Parliament, the amendments will enter into force on 1 January 2023.

By Lidia Suveges, Attorney at law, KCG Partners Law Firm

Hungary Knowledge Partner

Nagy és Trócsányi was founded in 1991, turned into limited professional partnership (in Hungarian: ügyvédi iroda) in 1992, with the aim of offering sophisticated legal services. The firm continues to seek excellence in a comprehensive and modern practice, which spans international commercial and business law. 

The firm’s lawyers provide clients with advice and representation in an active, thoughtful and ethical manner, with a real understanding of clients‘ business needs and the markets in which they operate.

The firm is one of the largest home-grown independent law firms in Hungary. Currently Nagy és Trócsányi has 26 lawyers out of which there are 8 active partners. All partners are equity partners.

Nagy és Trócsányi is a legal entity and registered with the Budapest Bar Association. All lawyers of the Budapest office are either members of, or registered as clerks with, the Budapest Bar Association. Several of the firm’s lawyers are admitted attorneys or registered as legal consultants in New York.

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The firm advises a broad range of clients, including numerous multinational corporations. Among our key clients are: OTP Bank, Sberbank, Erste Bank, Scania, KS ORKA, Mannvit, DAF Trucks, Booking.com, Museum of Fine Arts of Budapest, Hungarian Post Pte Ltd, Hiventures, Strabag, CPI Hungary, Givaudan, Marks & Spencer, CBA.

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