Budapest Rental Issues: "Source Tax" (25%)?

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eddie10

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I have purchased a new one bedroom apartment in Budapest district X1 with a car space . The property company have found a tenant and i am currently getting 95,000 huf in rent(approx 335 euro). This has only come about last month. I have asked the property management company to break up how we will receive the payments and they broke it up as:
a) our management fee (10 % + VAT),
b) "Source Tax" (25%),
c) Property Insurance,
d) Tenant finder's fee.

The source tax?? How does this work..I know about double taxation, but i thought it was at 20%..?? Any aasistence on this would be greatly assisted...
 
Hi Eddie,

25% is the rate of tax for rental income in Hungary when you buy as a private person, so they're completely correct in paying this for you. You can deduct this amount from the tax that you have to pay on the income in Ireland.

Budapest
 
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Thanks Budapest..

This may sound silly, but why would there be additional tax back here. Does the 25% cover both countries??
 
Tax is payable on worldwide income in ireland regardless of where it is earned.

See [broken link removed] for details of Rental income in Ireland in General.
In particular see How are foreign rents taxed and How is profit / loss rent calculated.

You are also liable to CGT on the sale of property in Ireland although any similar tax paid in hungry can be offset against it. This would be covered in the double tax agreement between Ireland and hungry.

An example of how the tax return is calc/made in Ireland
Calc of Rentals return in Ireland
Gross Rent 5,000
Expenses
Mortgage Interest only 1,500
Fixtures and Fittings 200 (12.5% written off over 8 years)
Other Exps 200

Net Rent 3,100 @ marginal tax rate you pay in ireland @ 42% 1,302

Less tax paid in hungry 5,000 @ 25% 1,250

Tax due in Ireland 52 (not a lot but as the interest decreases each year the amount due in tax will increase)
Losses (if any) in ireland can be carried forward to the next year
 
as a general rule for renting in Buda, you lose about 46% in tax and fee's in year 1.

Mngmt Company: 12.5% (10% + VAT)
Tax: 25%
Mngmt Company charge a 1 month finders fee, so thats another 1/12th, or 8.5%.
 
I am in a similar position to Eddie in that my apartment in District XIII has just been let (thanks for your advice Budapest!!), just wondering if anyone knows wether its possible to open a bank account without travelling over?
 
bpi said:
I am in a similar position to Eddie in that my apartment in District XIII has just been let (thanks for your advice Budapest!!), just wondering if anyone knows wether its possible to open a bank account without travelling over?
Click to expand...

Not as far as i know. You can get passports etc notarised at the embassy in Ireland, but the bank are obliged to actually see you before opening the account (money laundering legislation) as far as I am aware. I have heard anecdotal evidence of people having done it from afar where their lawyer etc has a very good relationship with the bank, but it sounds illegal and risky to me.

Anyway with flights so cheap now between Dublin/Cork and Budapest, its just a days work and not a big hassle to nip over and do your business. If you get the Malev flight you won't have to do an overnight, although that's not any great hardship in this beautiful city. I tend to look for excuses to visit, not the other way round!

In the past I have found that Hungarian banks were expensive in terms of fixed charges and had a poor customer service focus, so that I tended to favour foreign banks such as some of the German or Austrian ones. This may have changed, maybe someone can advise?
 
Hi bpi,

That's great that you got your apartment rented!

I think it's a money laundering regulation that you be present and provide identification before you can open an account in Hungary. Maybe there's an alternative, but I'm guessing that you would at least have to use the Hungarian embassy, which in itself can cost more than the short trip. I've found Citibank to be very good and they have an extensive English online facility and their interest rates are currently up to 9% for deposit accounts.
 
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Thanks guys, looks like I'll just have to take a little pre Xmas trip!!!
 
I think it's a sign of the times that someone would buy a foreign apartment without knowing that:

(a) tax would be deducted on rental income at source; and
(b) income tax is payable in Ireland on foreign earnings.

I imagine this must play havoc with your expected rental yields.
 
extopia said:
(b) income tax is payable in Ireland on foreign properties.
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There is a double taxation agreement between Ireland and Hungary, so once you pay the tax in hungary, its not taxed again on return. (unless I've missed your point, sorry)
I would change that statement to be 'Income tax is payable in Hungary (or Spain or whereever) on property'. People, as we can currently see in spain), seem to forget that other countries have this wierd anomoly called 'taxation' too!
Just because its outside the country, does not mean its off-shore ;)

regarding opening the bank a/c, I can vouch for Citi-bank, the on-line banking is available in english, and easy to use. If necessary, you can also use your Citi ATM card in Ireland.
 
paddyd said:
There is a double taxation agreement between Ireland and Hungary, so once you pay the tax in hungary, its not taxed again on return. (unless I've missed your point, sorry)
Click to expand...
You are taxed in both jurisdictions but you will be allowed either a credit or a deduction for foreign tax paid, depending on the agreements between the two countries.
 
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