The discounted 5% VAT rate introduced in 2016 will be abolished as of 1 January 2020, meaning that the 27% VAT rate will be applicable from that date, which can have significant effect on the market. In order to avoid a possible market chaos, the Hungarian Real Estate Development Roundtable Association (IFK) proposed introducing flexible, gradual VAT and stamp duty regulations that may result in increasing tax burden in the next 3-4 years. The new system could ensure that the supply and the sales of the new real estates are not reduced drastically from 2020.
According to the proposal of IFK, after 1 January 2020, the current 9% tax burden on new real estates (i.e. the 5% VAT + 4% stamp duty paid by the buyer) could be increased to 14% by introducing a 5% stamp duty to be paid by the seller. This lower tax burden (compared to the 27% VAT) could hold the real estate constructions in an optimal level, but it would also mean a higher income for the Hungarian budget.
The real estate developers are confident that the drastic decline in real estate constructions from 2020 could be avoided by this intermediate solution. The proposal of IFK has already been sent to the Hungarian Government.
By Eszter Kamocsay-Berta, Managing Partner, KCG Partners Law Firm