For a foreign investor who wants to purchase real estate in Budapest there are two ways to proceed: Either applying for a permit from the municipality to have a real estate in Hungary as a private person or establishing a local Hungarian company and name it as owner of the real estate.

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Advantages and disadvantages of buying as a private person

This way is cheaper than the establishment of a company, but the application for the permit can be denied though it is unlikely as EU integration rapidly approaches. The procedure of getting the permission will take some time, approximately 2 -3 months. In case the permit would be denied it is still possible to establish a company to acquire the property. As a private individual it is presently impossible to acquire more then one property.

The costs if you buy as a private person

:: the price of the chosen property
:: 1-1.5% of the price of the property for the lawyer's fee (plus 25% VAT)
:: 2-6% of the price as purchase or stamp duty (2% upto 4million HUF value, 6% above 4million HUF value). Note: there is no stamp duty on newly built apartments below 30million HUF (approx. 120 000 EURO).
:: 50.000 HUF (cca. 200 Euro) tax to the local Public Administration Office.

In case you want to buy a real estate as a private person the following documents should be provided:

:: Passport
:: (If You have) Documents published by Hungarian Authorities

Tax on rent for private individuals

The tax on rent is 20% of the rental income when renting a residential or commercial property to an individual or a business. Foreign nationals must apply for a tax ID and issue an invoice to tenant.

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Advantages and disadvantages of buying property through establishing a company

An advantage is that all costs relating to the apartment can be recognized as expenses and written off, including flight costs, accommodation, legal & agency fees, stamp duty, renovation costs, furniture, utilities, and all associated services, including the interest on the purchaser's loan. Under this approach, the company can be sold along with the property, which makes it attractive for future buyers, as no purchase duty needs to be paid. The only disadvantage is that the company shall require an accountant and need to submit annual reports. If one has plans to buy more than one real estate property the establishment of a limited liability company is suggested.

The costs if you buy as a company

:: the price of the chosen property
:: 1-1.5% of the price of the property for the lawyer's fee (plus 25% VAT)
:: 2-6% of the price as purchase or stamp duty (2% upto 4million HUF value, 6% above 4million HUF value). Note: there is no stamp duty on newly built apartments below 30million HUF (approx. 120 000 EURO).

Expenses of establishing and running a company

The expenses of establishing and running a company depend on the chosen company form. The initial cost is approximately 800-1000 Euro plus 25% VAT. The most common company forms are: limited partnership (Bt), limited liability company (Kft), joint stock company (Rt) and branch office (fiók telep). The running costs may vary between 160-800 Euro + 25% VAT per year for accounting and tax purposes if the company is not actively trading.

In case you buy a real estate as a company the following documents should be provided:

:: Incorporation documents
:: Signature specimen

Tax on rent for companies

Companies only pay the 16% corporation tax on profits.

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Buying a property in practice

Step1 Upon finding a property that you like the first step is to start initial negotiations with the seller. (In most cases sellers are willing to lower their initial asking price but it is rare for a seller to go lower then 3 to 5%).
Step2 In case reaching an agreement with the seller certifying the buyer's identity from his/her passport is a prerequisite to either buying property as an individual or in establishing a company in order to buy. It can be done at any Hungarian embassy or consulate, though it is much cheaper and faster to do it in Hungary visiting any notary public office and signing the required document.
Step3 When the price and conditions are agreed upon verbally with the seller the next step is to have a Hungarian registered lawyer start drafting the buy-sell agreement. In order to do this and ensure that the property is taken "off the market" the buyer should leave 10% deposit of the sale price when securing the property. Hungarian law protects buyers that place this initial deposit in that if so whatever reason the seller backs out of the contact he/she is obliged to pay 2 x s the deposit. The rest needs to be paid in full as agreed with the parties. Note than the real estate market in Hungary, but especially in Budapest is very fast, not securing a property that you like in time has meant that some clients either lose the opportunity to bid (as the property is sold) or are drawn into a biding war with other buyers.

In case of buying as a private individual one should name a local legal representative who will initiate the permit approval process.

In case of establishing a company after reaching an agreement with the seller the first step is to sign the company's Articles of Association in front of a lawyer. Then specimens of signature need to be signed in front of a public notary, and then a bank account must be opened. After the Articles of Association are prepared, all the documents, forms, authorizations and invoices must go to an accountant who will take care of all the administration and begin to prepare the required reports. This process can take 1-2 days in total.

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The accepted management fee for a rented apartment is 10-15% of the monthly rent.

The accepted commission when renting an apartment through an agency is one month's rent plus 25% VAT paid upon signing the contract in case the apartment is rented for a year.

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These conditions, fees and the exchange rate between Euro and HUF might be changed. Please ask for the actual conditions when you decide to buy a real estate in Hungary.