As to the pending issue of the preferential VAT rate of 5% for new residential properties, finally the new tax laws approved by the Hungarian Parliament in November 2018 will remain to ensure the reduced VAT rate of 5% in case the date of completion of the residential properties is after 31 December 2019, provided that certain conditions are all met on 31 December 2019. These conditions are that a) the sale and purchase agreement has been submitted to the land registry office, b) the residential property can be considered as a structurally complete building (shell and core) and c) the seller of the residential makes a declaration to the tax authority on the compliance of the conditions included in points a) and b).
The amendment also includes the definition of the structurally complete residential building, which is a building where the external bordering structures have been prepared (with walling, floor and roof structure, doors and windows and depending on the construction documentation, with chimney, balcony and external stair structure).
Furthermore, according to the tax package, the reduced VAT rate would be applicable until 31 December 2023 in case of the sale of those new residential properties which have a final building permit on 1 November 2018.
According to the real estate developers, the proposal of the Hungarian Government has clearly favourable effects on the market, however, it would be more advantageous if the above deadline of 1 November 2018 would be extended until 31 March 2019.
By Gabriella Galik, Partner, KCG Partners Law Firm