Effective structures for real estate investments in Hungary
Eventhough the increasing Hungarian property prices more and more private foreign investor buy luxury and commericial real estates in Hungary. Becuase of the relatively good ROI and devaluated Hungarian Forint. Find more information about the most efficient trust and corporate structures for real estate investment in Hungary.
The private investors have to pay 15% personal income tax on the rental income and enjoy zero capital gain tax on the disposal of the property after 5 years.
If the real estate usually long-term investment. So it is worth to consider the application of corporate and trust structure for real estate investment in Hungary. Here our thoughts how you can minimize the tax burden and maximize the return on investment.
Corporate income tax and Local business tax
The general rate of the corporate income tax (CIT) in Hungary is 9%, but the companies has to pay local business tax (LBT) to the municipality where the company is registered on the gross profit of the company. The LBT rate general rate is 2%, but the municipality can decrease it to zero as well.
Tax benefits in corporate income tax
The CIT registered company can deduct the value of the new invesments from the tax base. Also able to set aside development reserve from the annual profit before tax. And postpone the CIT liability in case the company will spend the development reserve to investment within 4 years.
Small business tax to minimize the tax on profit
The so called small business tax (SBT) is created for companies which reinvest their profit. The entites choosed the SBT do not have to pay tax on their annual profit. The tax base of the SBT (simplified) is the dividend paid to the shareholders and the gross salary paid. The LBT base can be the 120% of the SBT base.
So in case the company does not pay dividend and has not employees or doesn’t have to pay salary to the managing director, the profit is tax free. The HU government created this type of tax to motivate to reinvest the profit of the smaller companies.
Trust to minimize on the capital gain tax
The HU trust – fiduciary asset management contract – has to pay corporate income tax on its annual profit and local business tax as well in case it has regular income (revenue) as well. In case the trust has only financial income and only natural persons are the settlors and beneficiaries the profit is tax free.