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PwC Alert - Hungary Parliament approves major change in property tax rules
Wednesday, July 8, 2009 08:53:00 AM
There is one major change in the real estate industry-related tax rules in the bill as accepted by Hungary's Parliament compared to the original text of the bill as submitted to Parliament, which is that the rules related to registered shareholdings can be applied in the case of companies that own real estate.
PricewaterhouseCoopers has amended the text of its earlier Tax & Legal Alert with information on certain other minor changes related to real estate.
2009.07.06 13:00
PwC Alert - Do you have high-value property in Hungary? Taxes await you from 2010
Under the tax changes affecting the real estate industry effective from 1 January 2010, the acquisition of a shareholding in a company that owns real estate will be subject to duty, and a foreign shareholder will be liable to pay corporate tax on the profit from the alienation of a share in a company that owns real estate. Please note that the statutory definitions in the Act on Duties and the Act on Corporate Tax and Dividend Tax are not the same.
Corporate tax
Under the Act on Corporate Tax and Dividend Tax, a foreign shareholder that sells its shareholding in a company that owns real estate, or withdraws this shareholding by means of a capital decrease, or uses the shareholding as a contribution-in-kind or transfers it without consideration will qualify as a taxpayer from 2010 and will be taxed. A company and its related parties will qualify as companies that own real estate if
• 75% of the market value of their assets is domestic real estate and
• they have a foreign shareholder that is not resident in a country that has a double tax convention in place with Hungary or the convention allows the foreign exchange gain to be taxed in Hungary.
The value of the real estate will have to be calculated based on the market value of the assets. According to the Ministry's official commentary to the act, the assets will have to be revalued each year based on the data in the financial statement. The related parties will have to inform each other every year of these data, and, if the company group as a whole (taking the related parties' data into consideration) qualifies as a company that owns real estate, each member of the group will also qualify as a company that owns real estate.
When a shareholding in a company that owns real estate is sold or its capital is decreased, the tax base is the consideration received for the shareholding reduced by the purchase (acquisition) value and by the verified costs of acquisition and maintenance.
The Act defines the consideration for each method of alienation. The tax rate is the corporate tax basic rate (19%).
The relevant return will have to be submitted and the tax will have to be paid by 20 November in the year following the tax year. A foreign member may deduct the amount from the corporate tax (by withholding tax) that it has paid abroad as a tax equivalent to corporate tax.
The regulations applicable to real estate owners will not apply to taxpayers that are listed on a recognised stock exchange.
Please note that double tax conventions take precedence over the domestic rules applicable to the taxation of alienation.
Duties
As of 2010, the general duty rate on the transfer of property for consideration will be reduced to 4% from 10% on up to HUF 1 billion in sales value. The rate will be 2% for amounts above this value (but the amount of duty may not exceed HUF 200 million).
If residential property is acquired, the duty rate will be 2% on up to HUF 4 million of the value of the property. The duty rate on amounts above HUF 4 million will be 4%. From 1 January 2010, duty will have to be paid on the acquisition of at least 75% of the capital shares in a company that owns real estate. The capital shares owned by related parties will have to be taken into account for the purposes of this rule. The duty rate will be 4% (or 2%), according to the sales value of the property acquired.
No duty will be payable on acquisitions that took place more than five years ago, or on acquisitions of property as gifts or by inheritance. The acquisition of a company owning real estate will have to be reported to the Tax Authority.
It is a temporary relief that the deadline for re-sale for real estate traders and for the construction of residential buildings will be extended by two years if the Tax Authority was notified for duty purposes between 1 October 2006 and 31 May 2009 in the case of real estate traders and between 1 October 2004 and 31 May 2009 in the case of residential property construction. The deadline for submitting requests for extensions of these deadlines is 31 January 2010 if the original deadline expires between 1 October 2008 and 15 January 2010, but the same date as the original deadline if it expires after 15 January 2010.
From 2010, it will be simpler for businesses that are active in the financial leasing of real estate to become eligible for the preferential (2%) duty rate. Previously, they were only eligible to use the preferential rate if their revenues from the financial leasing of real estate reached 50% of their total revenues. Under the new rules, to become eligible for the preferential duty rate, their revenues from all their financial leasing activities need to reach 50% of their total revenues.
Also, with regard to the economic crisis, lessees taking part in leaseback transactions (that sell and lease back their properties and acquire ownership at the end of the lease period) for financial reasons will be granted a temporary duty exemption. Only lessees that report the transaction to the Tax Authority between the promulgation date and 31 December 2012 will be eligible for this temporary duty exemption.
Tax procedure
The Tax Authority will receive information from the courts of registration (on the acquisition of qualified majority interests in companies) and from local governments (on foreign-registered owners of real estate that exceeds HUF 500 million in value, of one or more buildings with areas exceeding 1000 m2 each or of one or more plots of land with areas exceeding 10,000 m2 each, depending on the method of levying local taxes) so that it can check whether the duty obligations related to the acquisition of companies that own real estate are complied with.
The Tax Authority will publish a list of companies that own real estate by 30 September of each year (or, in the case of companies that have a non-financial tax year, within 120 days of the corporate tax return filing deadline).
Cultural contribution
The cultural contribution will be abolished as of 1 January 2010.
Portfolio.hu article today.
PwC Alert - Hungary Parliament approves major change in property tax rules
Wednesday, July 8, 2009 08:53:00 AM
There is one major change in the real estate industry-related tax rules in the bill as accepted by Hungary's Parliament compared to the original text of the bill as submitted to Parliament, which is that the rules related to registered shareholdings can be applied in the case of companies that own real estate.
PricewaterhouseCoopers has amended the text of its earlier Tax & Legal Alert with information on certain other minor changes related to real estate.
2009.07.06 13:00
PwC Alert - Do you have high-value property in Hungary? Taxes await you from 2010
Under the tax changes affecting the real estate industry effective from 1 January 2010, the acquisition of a shareholding in a company that owns real estate will be subject to duty, and a foreign shareholder will be liable to pay corporate tax on the profit from the alienation of a share in a company that owns real estate. Please note that the statutory definitions in the Act on Duties and the Act on Corporate Tax and Dividend Tax are not the same.
Corporate tax
Under the Act on Corporate Tax and Dividend Tax, a foreign shareholder that sells its shareholding in a company that owns real estate, or withdraws this shareholding by means of a capital decrease, or uses the shareholding as a contribution-in-kind or transfers it without consideration will qualify as a taxpayer from 2010 and will be taxed. A company and its related parties will qualify as companies that own real estate if
• 75% of the market value of their assets is domestic real estate and
• they have a foreign shareholder that is not resident in a country that has a double tax convention in place with Hungary or the convention allows the foreign exchange gain to be taxed in Hungary.
The value of the real estate will have to be calculated based on the market value of the assets. According to the Ministry's official commentary to the act, the assets will have to be revalued each year based on the data in the financial statement. The related parties will have to inform each other every year of these data, and, if the company group as a whole (taking the related parties' data into consideration) qualifies as a company that owns real estate, each member of the group will also qualify as a company that owns real estate.
When a shareholding in a company that owns real estate is sold or its capital is decreased, the tax base is the consideration received for the shareholding reduced by the purchase (acquisition) value and by the verified costs of acquisition and maintenance.
The Act defines the consideration for each method of alienation. The tax rate is the corporate tax basic rate (19%).
The relevant return will have to be submitted and the tax will have to be paid by 20 November in the year following the tax year. A foreign member may deduct the amount from the corporate tax (by withholding tax) that it has paid abroad as a tax equivalent to corporate tax.
The regulations applicable to real estate owners will not apply to taxpayers that are listed on a recognised stock exchange.
Please note that double tax conventions take precedence over the domestic rules applicable to the taxation of alienation.
Duties
As of 2010, the general duty rate on the transfer of property for consideration will be reduced to 4% from 10% on up to HUF 1 billion in sales value. The rate will be 2% for amounts above this value (but the amount of duty may not exceed HUF 200 million).
If residential property is acquired, the duty rate will be 2% on up to HUF 4 million of the value of the property. The duty rate on amounts above HUF 4 million will be 4%. From 1 January 2010, duty will have to be paid on the acquisition of at least 75% of the capital shares in a company that owns real estate. The capital shares owned by related parties will have to be taken into account for the purposes of this rule. The duty rate will be 4% (or 2%), according to the sales value of the property acquired.
No duty will be payable on acquisitions that took place more than five years ago, or on acquisitions of property as gifts or by inheritance. The acquisition of a company owning real estate will have to be reported to the Tax Authority.
It is a temporary relief that the deadline for re-sale for real estate traders and for the construction of residential buildings will be extended by two years if the Tax Authority was notified for duty purposes between 1 October 2006 and 31 May 2009 in the case of real estate traders and between 1 October 2004 and 31 May 2009 in the case of residential property construction. The deadline for submitting requests for extensions of these deadlines is 31 January 2010 if the original deadline expires between 1 October 2008 and 15 January 2010, but the same date as the original deadline if it expires after 15 January 2010.
From 2010, it will be simpler for businesses that are active in the financial leasing of real estate to become eligible for the preferential (2%) duty rate. Previously, they were only eligible to use the preferential rate if their revenues from the financial leasing of real estate reached 50% of their total revenues. Under the new rules, to become eligible for the preferential duty rate, their revenues from all their financial leasing activities need to reach 50% of their total revenues.
Also, with regard to the economic crisis, lessees taking part in leaseback transactions (that sell and lease back their properties and acquire ownership at the end of the lease period) for financial reasons will be granted a temporary duty exemption. Only lessees that report the transaction to the Tax Authority between the promulgation date and 31 December 2012 will be eligible for this temporary duty exemption.
Tax procedure
The Tax Authority will receive information from the courts of registration (on the acquisition of qualified majority interests in companies) and from local governments (on foreign-registered owners of real estate that exceeds HUF 500 million in value, of one or more buildings with areas exceeding 1000 m2 each or of one or more plots of land with areas exceeding 10,000 m2 each, depending on the method of levying local taxes) so that it can check whether the duty obligations related to the acquisition of companies that own real estate are complied with.
The Tax Authority will publish a list of companies that own real estate by 30 September of each year (or, in the case of companies that have a non-financial tax year, within 120 days of the corporate tax return filing deadline).
Cultural contribution
The cultural contribution will be abolished as of 1 January 2010.
Portfolio.hu article today.