HUNGARY Law and Practice Contributed by: Attila Ungár and Júlia Várkonyi, Lakatos, Köves & Partners
The law allows investors to enter into a town settle - ment agreement with municipalities, in which the latter can even undertake to change the local building regu - lation to fit the needs of the project. Such agreements are considered private law/commercial matters and cannot predetermine public law matters such as the approval of building permits, which must comply with construction norms in all cases. 2.9 Condemnation, Expropriation or Compulsory Purchase Ownership of real estate may be acquired by the state or the local municipality – or by a third party – if it acts in the public interest for the purposes specified by law in exceptional circumstances for public use, against immediate, full and unconditional compensation. 2.10 Taxes Applicable to a Transaction Transfer Tax Generally, the sale and purchase of real estate is subject to transfer tax, payable by the purchaser. The general tax rate is 4% on up to HUF1 billion of the market value of the real estate and 2% on the excess. However, the total payable transfer tax is capped at HUF200 million per real estate. Similarly, transfer tax should be payable by the pur - chaser of shares in a real estate holding company if said purchaser’s ownership ratio reaches 75% of the company’s total shares. This threshold includes the shares of related parties and close relatives. The amount of transfer tax should be calculated separately in relation to each real estate asset held by the com - pany. A “real estate holding company” is a company whose total assets in the balance sheet are made up of 75% or more of Hungarian real estate or an entity that owns more than a 75% participation, directly or indirectly, in a company fulfilling such condition. The cost related to transfer tax is typically not shared between the purchaser and the seller in a transaction, but it is always considered by the parties when the acquisition structure is being set up. In addition, the transfer of real estate that has been rezoned as incorporated land and the transfer of the shares of a company holding such land are subject to
transfer tax, payable by the seller. The rate of transfer tax is 90%, which is levied on the following: • the difference between the market value of the real estate being sold, at the time of acquisition by the seller, and the market value established for the time of transfer; or • in the sale of shares of a company holding real estate that has been rezoned as incorporated land, the difference established according to the forego - ing in proportion to the ratio in which the shares are sold compared to all shares. The transfer tax is applicable if the rezoning took place within ten years of the sale (taking into account the predecessor’s period of tenure of ownership in certain cases). However, no transfer tax is payable if the real estate was rezoned in the sixth year after the seller’s acquisition, nor if it was acquired by inheritance. A preferential transfer tax rate (flat rate of 2%) can be applied to acquisitions by real estate funds, credit institutions, real estate traders or real estate invest- ment trusts (REITs). However, the HUF200 million cap cannot be applied in these cases. In a special procedure, the paid transfer tax can be reclaimed from the tax authority in relation to the reno - vation of a historical building if the National Trust of Monuments for Hungary certifies that the renovation has begun within one year of filing the notice of the title change with the tax authority that imposed the transfer tax and the renovation is finished within five years. Various exemptions are also available – for example, subject to further conditions, no transfer tax is payable if the transfer takes place between related parties and in cases of a preferred transformation or exchange of shares or transfer of business. 2.11 Legal Restrictions on Foreign Investors The acquisition of real estate by foreigners (ie, natural or legal persons outside the EU or the EEA) is subject to the approval of the competent government office, which is granted if the acquisition of the real property does not constitute harm to local government or other public interests.
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