We updated our article on 28 October 2022.
The applicability of the 5% VAT on the sale of new residential properties in Hungary was extended by two years, until 31 December 2024, by Government Decree 267/2022 published in the Hungarian Gazette on 29 July 2022. The deadline relates to the finalisation of the building permit or the simplified registration of the building.
Earlier, we reported that in Hungary the VAT rate applicable for new residential properties, first introduced in 2016 and originally effective until the end of 2019, had again been lowered to 5% from January 2021. In line with the amendment last year to the Act on Value Added Tax, the preferential tax rate for new residential properties would apply until the end of 2022, more precisely until the end of 2026, if the building permit is finalised by 31 December 2022, or the construction activity subject to simplified registration is reported no later than 31 December 2022. This 2026 deadline is contained in a transitional rule related to the rate discontinuation as of 31 December 2022; according to previous plans, the transitional rule would take effect on 1 January 2023.
This short government decree announced in July and also taking effect on 1 January 2023 has added two more years to the applicability of the 5% VAT rate for new residential properties. Accordingly, the amendment to the VAT act regarding the preferential VAT rate will stay in force from 1 January 2023 until 31 December 2024 in line with the previous conditions. UPDATE! The deadline of the applicability will be extended from 2026 until the end of 2028 according to a transitional rule included in Bill T/1614 submitted to the National Assembly in October.
The conditions for the preferential VAT rate on new residential properties in Hungary will not change. As we explained in our article last April, the 5% is applicable for properties established for dwelling purposes and registered in the real estate register as a house or apartment, or designated for registration as such. Areas not required for the intended use as a dwelling shall not be construed as residential property, even if built adjacent to the residential building, such as a garage, workshop, shop or farm building. A property shall be regarded as new if it has not yet been used as intended, or if it has, then two years have not yet passed between the official completion certificate becoming final and its sale. The preferential VAT rate of 5% for new residential properties is only applicable if the total usable floor space does not exceed 150 square metres for a multi-occupational residential property, or 300 square metres for detached family homes.
The future of VAT on new residential properties
Extending the deadline on the 5% VAT rate for new residential properties slightly resembles that of the rule on reverse charging for agricultural products in Hungary. This latter rule took effect on 1 July 2012, temporarily for two years, i.e. until 31 June 2013 according to the original intention, then with multiple extensions the rule is still in force today.
Although the extension of the 5% VAT rate will certainly have a beneficial effect on the construction industry, stakeholders in the profession and the affected markets may rightfully sense a uncertainty. At this moment it is very difficult to say whether this rule will stay with us for a while, like the reverse charging for agricultural products, whether we can bid farewell to it forever at the end of 2024, or will it perhaps be transformed, bearing environmental and energy conservation considerations in mind. Understandably, the legislator’s intention may change in the medium and long-term under the current and anticipated future world economic situation.
If you need advice on the 5% VAT applied in connection to new residential properties, or on the tax refund support up to said amount, or on other tax issues related to real estate, then our VAT professionals are here to help!