Investing in Budapest as a Ltd Company

W

Wanomore

Guest
Hi There,

I've been thinking about investing in property in Budapest and I have found your discussion to date really helpful - in particular the information/advise you have to offer, Tommy - cheers.

I've done some research and I'm comfortable with the idea that buying property in Budapest now is a good investment. I have one big concern that's holding me back. It doesn't sit right with me that the simplist way to invest is to set up a ltd. co. and then purchase the property through my company. By doing this are we not abusing a loophole in Hungarian law that could come back to bite us? As far as I can see, the Hungarian government aren't in favour of speculative buying which makes me nervous.

Anyone know anything about this?

Thanks...
Wanomore
 
The only way you can answer these questions is to get proper, professional advice from an impeccable and totally independent source - not someone for instance recommended by or connected to a selling agent.

If I were in your position I would consider approaching one of the large multinational accountancy firms who would have expertise in dealing with the legal and tax systems in Hungary from the viewpoint from a foreign investor. Their fees may well seem steep but the cost should be seen as part of your overall investment.

I certainly would be very reluctant to proceed with an investment if it has to be structured in a way that seems in any way to be "hooky" or open to legal or other challenges by the authorities over there.
 
Hi Wanomore,

I in no way want to disparage any of Tommy's remarks as I see nothing wrong with them. I'm not a legal expert either so I can't answer your question for you definitively. However, I have done some research into buying property in Budapest and also throughout Eastern Europe (Romania, Bulgaria etc...). I haven't bought anything however because I was slightly put off the idea by some people, including a property developer who is presently building in Budapest.
Anyway, my point is this. In my own personal opinion (for what that's worth), I don't think there's anything underhanded or illegitamate about buying property under the guise of a registered company. As far as I can see it is perfectly legal. You register your company in that country, then you, as a company, buy property! I really don't think that the Hungarian government will ever take a dim light on this because you are not breaking any laws.
Furthermore, there has been foreign investment in Hungary for quite some time now so you would imagine that if the Hungarian government saw this as a loophole they would have closed it by now. I personally believe that the reason for this is that there is too much red tape involved in buying as an individual.

Also, and again I stress - for what it's worth, I was offered a mortgage from Raiffessen bank in Budapest and they themselves pointed out to me that I would have to set up a company before I could buy property. Bank Managers, in this country at least, will rarely offer advice that requires you to break the law.

Obviously, Tommy's advice is sound, as you would seek legal advice before purchasing abroad anyway. But as for there being any danger to your property in the future, I would be very surprised if this was the case as it is the same procedure for most Eastern European countries.

Piggy.
 
Hi Piggy

One serious problem, as I see it, is the possibility of the Hungarian Govt tightening severely the compliance regulations for Hungarian companies owned and operated by non-Hungarian residents.

The Irish Govt did this a few years ago in an attempt to stop international criminals using Irish companies as investment vehicles. Now anyone operating an Irish company without having an Irish-resident director on board must comply with a whole battery of new regulations including stumping up a bond of €25,000-odd to the Govt as security against any future tax or legal default.

This isn't the sort of thing that a novice investor needs. On top of this, there are the usual tax difficulties with having residential property owned by a company.

Therefore, advance professional advice is absolutely essential.
 
Also, and again I stress - for what it's worth, I was offered a mortgage from Raiffessen bank in Budapest and they themselves pointed out to me that I would have to set up a company before I could buy property. Bank Managers, in this country at least, will rarely offer advice that requires you to break the law.

I wouldn't depend on a bank manager in any country for independent, objective financial or business advice to be honest. Tommy's recommendation of obtaining such advice elswehere is particularly apt in this situation.
 
Tommy/Piggy,

I can see both your points so I think I'm going to go with your suggestion Tommy and seek professional advise. I have a niggling doubt in my head about the ltd. company side of the investment process so I need to put it to bed before I consider investing. I'll come back once I find out to share any relevant information.

Thanks to both of you for contributing.

Wanomore
 
That's a good point Tommy. However, as you say yourself, the Irish government did this "to stop international criminals using Irish companies as investment vehicles". I know nothing about the Hungarian government but I doubt they view private investors forming companies to buy property as criminals. However, at the same time it is a fair point you are making and I don't know enogh about it to talk with any great confidence.
My gut feeling though would say that Hungary is lapping up foreign investment of all kinds. Ultimately it will make them rich. They are after all a former Eastern block country and were very poor at one stage. Through foreign investment they are now at the top of that pile of countries presently.

I do agree though that professional advice is essential.

Piggy.
 
Bank Managers, in this country at least, will rarely offer advice that requires you to break the law.
Click to expand...

Except of course for the hundreds of Irish bank managers who advised their Irish clients to open bogus non-resident accounts to evade tax during the 1980's.
 
Hi Piggy

I know nothing about the Hungarian government but I doubt they view private investors forming companies to buy property as criminals.
Click to expand...

Maybe not but you must remember that Slobadon Milosevic's son once had an Irish-registered property company! Property acquisition is the No. 1 option for international money-launderers so while no rational government views property investors as criminals, perhaps they have some reason to take certain steps to ensure that they are not potential criminals.
 
Can't argue with you there Tommy. The million dollar question I suppose is will they take these steps.
I personally don't for all sorts of reasons. But you may be right. If so, then you are also right that that would leave the private investor in a very bad position.
I don't know if anyone can find this out though. However, as I said, it's happening all over eastren Europe, and has been for a long time now. I'm not arguing with your observation, but no one can say what will happen. Perhaps the government will be overthrown by the communist party (if they still have one)!!!
I think it's all part of the overall risk of purchasing there.

Piggy.
 
The million dollar question I suppose is will they take these steps.
Click to expand...

I certainly wouldn't like to risk a substantial investment on trying to outguess them on that one!

That said, if Hungary or any other country is set to join the EU, I think it would be a bit naive to assume that they will not be forced to adopt the same anti-money laundering measures that are already operational throughout the EU.
 
Investing in Budapest as a Ltd. Company

Hi all,

My understanding of the issue is that you can buy a property as a foreign national in budapest. However, a foreign national must apply to the city council (or equivalent) for a permit for the exact property you wish to purchase (e.g. 523 O'Connell St.). It may take weeks or months to obtain the permit (I understand that this timeframe has reduced recently) and the seller will in most cases not wish to wait that long. However, a registered company can buy the property immediately and it is possible to set up the company in one day.

There is nothing illegal about setting up a company and buying a property whatsoever and the company is liable for taxes on profits in accordance with hungarian law. The irish revenue will allow you a tax credit on any tax paid in hungary in accordance with the double taxation agreement between the two countries. In other words, you pay tax to the hungarian government in accordance with their tax laws and if this is less than what the irish goverment would have taxed you at then you pay the balance to them. It is worth noting that a company is allowed significant tax breaks on profits in hungary including most expenses associated with the property such as management company fees, tenant finding fees, legal fees, bookkeeping fees, company (directors) trips to hungary etc. which is not available to an individual investor.

I think that wondering about what the hungarian govt. may or may not do and how they may or may not view companies owned by foreign nationals in the near, medium or distant future is very nebulous at this point and imho should be treated as simply part of the overall risk of purchasing abroad. Individuals, having received all of the advice they can get or pay for can then assess if the overall level of risk is suitable for them.

I hope this has been of some help,

cheers,

irisir
 
Re: Investing in Budapest as a Ltd. Company

Hi irisir

Thanks for the useful clarification on the above.

From what you say, it is really an option for each investor whether to organise their investment in a limited company structure. Certainly nobody should ever set up a company or act as a company director without proper and fully independent professional advice. This applies even to a greater extent when a company exists in a foreign jurisdiction.

I don't think you are correct in saying that it is "nebulous" to make a decision on whether to form a Hungarian limited company on the basis of speculation of what might happen if the Hungarian govt impose new rules for companies owned by foreign nationals.

The trend internationally in recent years, particularly in the light of high-profile cases of criminal money laundering and corporate accounting scandals, has been towards far tighter regulation of companies and their directors. This has led to much higher administrative costs for companies and more onerous reporting and compliance burdens for their directors - to the point we have now reached in Ireland where forming or running a company is no longer a viable option unless it meets certain strict criteria. It is certainly an absolute no-no if the company directors don't reside in the State.

In my view, anyone with interests in a foreign company must take these trends into account, and adjust their plans accordingly. Otherwise they are leaving themselves open to a serious risk of huge costs and administrative hassles in the future - which (if the Irish legislative model were repeated elsewhere) could be enough to undermine the long-term viability of any private investment.

It is for this precise reason that any Irish person considering setting up a company in Hungary, France, Germany, Spain or any other foreign company would need to to tread carefully and arm themselves with appropriate professional advice where possible.
 
Investing in Budapest as a Ltd. company

Hi Tommy,

Taking sound professional advice is a given and I agree fully.

My description 'nebulous' was merely to point out that there are presently no onerous restrictions to forming a company in hungary and it is impossible to predict what may happen in the future. If international trends are for greater restrictions on companies then it would be wise to take these on board and include them in the overall assessment of your investment. However, I don't think going the 'company' route should be ruled out of hand due to possible future rule changes.

cheers,

irisir
 
Investing in Budapest as a Ltd. company

I am also interested in buying in Budapest but the whole decision between going as an ind or company is giving me grief.

Is it not true that if you invest as a company you have on the sale of the property you have to pay 25% capital gains and 20% dividend.

Where as an Individual you only have to pay 18% on profit made to Hungarian government?

If going the company route, am I right in saying that if you reinvest the profit you don't have to pay any income tax??

If any one has any more info on benefits or Co versus Ind I'd appreciate it!
 
Re: Investing in Budapest as a Ltd. company

Don't forget that you will also have to address the issue of Irish CGT and Irish income tax on rental income.

Don't commit yourself to any such investment without first obtaining proper and independent tax advice in both Ireland and Hungary.
 
Mortgage in Budapest

Piggy, did you approach the bank directly or were you referred? I was under the impression that the rates for foreigners in budapest were extortionate, if they offered you a loan at all. Could you offer any advice on this?

I have just bought a property in Budapest with a couple of friends for investment, and we would like to buy another with a mortgage if possible.

Any suggestions would be greatly appreciated.

Rich
 
Budapest

rdoleman, I was wondering what company you went through when buying your appartment, and if you travelled out there. I too am thinking of investing there and I am trying to gain all the info I can. I am looking at casaro at the moment, but I would love to hear your opinions on this. Cheers.
 
Re: Mortgage in Budapest

Hi rdoleman,

Went to the bank myself. I actually approached about 15 banks. They were the only reply I got. 60% finance over 10 years. Not great all the same.
I'm afraid as I decided not to take it any further I can't offer much more advice. If I did, it'd be guess work. From one point of view I think I'm right in saying that if the Hungarian government devalue, your property will obviously be worth less, but if your mortgage is in Hungarian forinths, then you'll be getting more euro for your forinth, so it'll balance out...sort of!!

Piggy.
 
mortgage in budapest

Hi Piggy,

The Hungarian govt. devalued their currency by c. 13% last June in preparation for entry to the EU. The currency has regained approx. 60% of that since. Its no guarantee, but its unlikely to devalue again.

irisir
 
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