VAT refund after real property construction in Hungary (5% or 27%?)

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Almost everyone’s dream is to  buy or build their own house, but as the legislation constantly changes it is difficult to see how much VAT (value added tax) we will have to pay when we commit ourselves to make our dreams come true. Our aim with this article is to show the way in the maze of VAT regulations for newly built real properties.

 

First of all let’s see that according to the current regulations, when can we pay only 5% VAT instead of 27% (which is the normal percentage VAT in Hungary).

 

Under the VAT Act, there are several contingent conditions for the existence of a 5% reduced tax liability.

In the case of a multi-residential property the detached apartment:

  • does not have an official permit or equivalent document OR
  • already has an official permit that allows the proper use, BUT not more than 2 years have passed between the final and binding building permit and sale (purchase) of the apartment AND
  • its useful floorspace does not exceed 150

 

In case of a detached, single house:

  • it does not have an official permit or equivalent document with it, OR
  • it already has an official permit that allows the proper use, BUT not more than 2 years have passed between the final and binding building permit and sale (purchase) of the house AND
  • its useful floorspace does not exceed 300 sqm…

 

In both cases, there is an additional condition: the sale and purchase of the real property must take place between 1 January and 31 December 2022.

It can be applicable for the period between 1 January 2023 and 31 December 2026:

  • if the building permit becomes final and binding by 31 December 2022 Or
  • in the case of a simple notification if the construction will be notified by 31 December 2022.

 

Secondly, let’s look at the terms of the tax refund under the Decree on CSOK (Family Housing Allowance Program). First on a case-by-case basis and its specific rules, and then on the common rules.

 

  1. In case of the construction of an apartment with a useful floor area of up to 150 sqm or a separate house with a useful floor area of up to 300 sqm —> tax refund can be claimed after the construction costs.

 

 

It means that if we build or have someone else to build an apartment based on the above mentioned, the tax refund can be reclaimed after construction costs.

Specific rules:

  • can only be reclaimed for an invoice with 27% VAT (5% VAT will not be accepted);
  • the amount of VAT will be refunded up to a maximum of HUF 5,000,000.

 

  1. In case of construction of a new property —> a tax refund can be claimed after the purchase price of the land

 

It means that if we would like to buy a land for the construction of a new apartment, the tax refund can be requested after the price of the land.

 

Specific rules:

  • can only be reclaimed for an invoice with 27% VAT (5% VAT will not be accepted);
  • the amount of VAT will be refunded up to a maximum of HUF 5,000,000.
  • the credit institution pays the applicant the purchase price of the land in one amount after submitting the invoice of the purchase price.

 

  1. Simultaneously with the use of CSOK, a tax refund can be used for the purchase of a newly built apartment with a useful floor area of up to 150 sqm or a separate house with a useful floor area of up to 300 sqm.

 

It means that if you would like to buy a newly built residential property in addition to CSOK you can request a tax refund after the purchase price.

 

Specific rules:

  • can only be reclaimed for an invoice with 5% VAT (27% VAT will not be accepted);
  • total amount of the 5% VAT refund can be requested.

 

  1. Simultaneously with the use of CSOK, a tax refund can be claimed for the construction of an apartment with a useful floor area of up to 150 sqmor a detached house with a useful floor area of up to 300 sqmon its own land.

 

It means that if you would like to build on your own land, in addition to using CSOK, the tax refund can also be used.

 

Specific rules:

  • can only be reclaimed for an invoice with 5% VAT (27% VAT will not be accepted);
  • total amount of the 5% VAT refund can be requested.

 

Common rules:

  • the application for a tax refund grant can be submitted to the participating credit institution (it is recommended to make sure that the application is accepted at the credit institution);
  • can be requested only once;
  • can be claimed for only invoices dated between 1 January 2021 and 31 December 2022.

 

Finally, as a non-negligible issue, let’s look at what qualifies as a new home or residential property.

From the foundation works – unless the existing fund can be used on the basis of an expert’s opinion – a newly built property that meets the conditions of housing, is registered in the real estate register as a residential house or flat or is to be registered as such, with the necessary land which has the necessary documents for the certificate of occupancy and which meets at least the following conditions:

  • It has a living-room and a kitchen of more than12 sqm – failing this, with an additional cooking area of at least 4 sqm– in addition a bathing area and a toilet,
  • it has public utility for electricity,
  • it has its own specific heating system,
  • has a public sewer, or if there is no public sewer in the settlement, the treatment and disposal of the sewage with a suitable system and
  • it has connection to the public utilities for drinking water – or if the settlement (or part of the settlemen) does not have access to this – there is a well with drinkable water in the land or
  • apartment created by attic or floor extension in case the attic is affected by exclusive use in the case of undivided joint ownership registered on a separate sheet of ownership of a condominium or in the case of undivided joint ownership consisting of several apartments, accessible by stairway or escalator with separate entrance, another apartment meeting the previous condition is created.

 

The “construction” of a new apartment is also the purchase of an apartment that does not have the necessary documents for use before obtaining the necessary documents for use if the building permit was issued after 1 July 2008 or the simplified notification was made after 1 January 2016.

So we can see that the discounts described above facilitate the purchase of real property and are financially favorable for those who are planning to build recently.

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