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The Effects of the Termination of the Reduced VAT Rate Relating to New Flats in Hungary

The Effects of the Termination of the Reduced VAT Rate Relating to New Flats in Hungary

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Under the Hungarian VAT Act, from 1 January 2016 instead of the general VAT tax rate of 27%, a reduced tax rate of 5% is applicable to the flats to be constructed or existing in a multi-unit residential building with a total net floor space not exceeding 150 square meters. This provision of the Hungarian VAT Act will remain in force only until 31 December 2019, accordingly, after this date the purchasers will pay for these flats a VAT of 27%.

The termination of the reduced VAT regime may have a significant impact on the construction industry and the flat investments. There are already delays relating to the construction of new flats due to the lack of building materials and available workforce. In addition, the contractors are now in the position to choose rather the construction of office buildings than multi-unit residential buildings. Currently, there is less interest for the flats with a handover date of 2020 due to the VAT issues.

With respect to the above, purchasers should expect further delays in the handover of new flats and the increase of the purchase price of the new flats from 2020, therefore, they should act carefully by choosing a reliable investor.

By Gabriella Galik, Partner, KCG Partners Law Firm

KCG Partners at a Glance

KCG Partners is a Hungarian business law firm providing a comprehensive range of legal services to international and local clients seeking local knowledge and global perspective. The firm comprises business-minded lawyers with sector-specific expertise, creating value for clients by applying a problem-solving approach and delivering innovative solutions.

The firm has a wealth of knowledge in corporate law, M&A, projects and construction, energy, real estate, tax, employment, litigation, privacy and forensics, securitization, estate planning and capital markets.

To address clients’ regional and international concerns, the firm maintains active working relationships with other outstanding independent law firms in Central and Eastern Europe, whilst senior counsel Mr. Blaise Pásztory brings over 40 years’ of US capital market and fund management experience.

KCG Partners Law Firm is the result of the teamwork of passionate and talented lawyers guided by the same principles and sharing the same values: 

  • Our most valuable asset is our people. They are the engine of our business and the key to our success.
  • We push boundaries by looking for innovative solutions that can empower our clients to achieve greater results.
  • We place our experience, commitment and professionalism to your service.
  • We are driven by our vision to shape and lead the Hungarian legal market and become a first choice law firm in our practice areas.

Firm's website: http://www.kcgpartners.com