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Purchasing Your Overseas Property in Hungary
When you find the property you wish to purchase in Budapest the first step is to agree verbally upon the price and conditions with the seller. Once this has been agreed, you will need to seek the services of a Hungarian registered lawyer to start drafting the purchase agreement. In order to ensure that your Hungarian property is taken "off the market" the buyer should leave a deposit (usually 10% of the purchase price).
That ensures that your chosen property in Hungary is no longer available to other potential buyers. Real estate in Hungary, but especially Real Estate in Budapest is very fast, not securing a property that you like in time can mean that some clients either lose the opportunity to bid (as the property is sold) or are drawn into a biding war with other buyers.) The purchase contract usually includes two main payment periods. The first one is usually when the contract is signed and is equal to 10% of the agreed price. Hungarian law protects buyers that pay this deposit in that if for whatever reason the seller backs out of the contract he/she is obliged to pay the double of the deposit
The remaining 90% of the purchase price needs to be paid full in 30 to 45 days after signing the contract. Payment of this can be stipulated upon certain conditions, e.g: concluding certain required work, installation of appliances, providing the buyer requested documentation, etc. It is recommended to go to a notariate to certify your identity from your passport. This issue can be done locally.
Buying as a private person
You have to apply for a permit from the Administrative Office of Budapest. They will answer within 30 days. If the answer is positive (99% of the cases it is positive), you can proceed and receive full registration. If the answer is negative (this happens quite rarely), you still can choose between setting up a company or filing a suit against the Administrative Office of Budapest, which you have a fairly good chance of winning.
Setting up a company
If you intend to purchase several properties in Hungary and may be doing other business in Budapest, setting up a limited liability company is recommended. It's a relatively easy procedure to set up a company. Setting up a limited liability company (Kft.) will cost around 180,000 HUF, including solicitor's fees. The procedure takes 3-5 days, and a sum of 3,000,000 HUF must be deposited in a Hungarian bank for at least 2 days.
The monthly cost of accounting is approx 20,000 HUF even if there is absolutely no activity in the company, because quarterly tax sheets and other reports must be regularly filed. A certified accountant must be appointed. The owners of the company may be private persons and legal entities as well. They can be domestic or foreign nationals too. It is possible to have only one owner, however, in this case an auditor must also be paid annually. Corporate tax in Hungary is 16%.
The solicitor will need personal details, a Hungarian address (usually that of the purchased property), a name for the company, and areas of activity specified real estate sales, management, services etc. After the Deed of foundation is concluded, the specimens of signature need to be signed in front of a public notary. Meanwhile a bank account needs to be opened for the company and the registered capital has to be deposited. With the certificate from the bank, the solicitor can submit the Founding Document to the Court. As soon as the company receives a tax number, a registration needs to be handed in separately to the tax authorities, the local municipality, the chamber of commerce (not compulsory), as well as the social security system.
All the files must go to an accountant who will take care of everything and warn the owner of legal changes and payment deadlines. A company registered in Hungary can immediately become the owner of property without having to apply for a permit. In case you decide to sell the property, closing a company is not advisable, for it is a long and complicated process. Solicitors and accountants recommend selling it at a nominal value (with the property). If the main activity of the company is buying and selling real estate and sells the real estate within two years following the purchase, transfer duty is only 2%. Otherwise the transfer duty is 2% following only the first HUF 4 million of the purchase price, above HUF 4 million it is 6%.
Before January 1st 2001, founding a partnership (Bt.) was fairly common among foreigners in Hungary, as there was a lower cost to establish and maintain, however, new accounting laws make it just as expensive to maintain it as a Kft. The primary difference between a partnership (Bt.) and a limited liability company (Kft.) is that the full owner of a Bt. is fully liable if the company goes bankrupt, where in a Kft. the liability is limited until the amount of the registered capital. A Bt. requires at least two members. A Bt. does not require 3,000,000 HUF registered capital. You can decide which form of incorporation you will use.
What are the additional expenses when buying an apartment in Hungary?
• For 4 million HUF of the purchase price 2% stamp duty has to be paid. For the remaining amount of the purchase price above the first 4 million HUF 6% stamp duty has to be paid. (E.g.: If an apartment in Budapest costs 20 million HUF then for 4 million HUF the stamp duty is 80.000 HUF (2%) and for the remaining 16 million HUF the stamp duty is 960.000 HUF (6%), so all together you pay 1.040.000 HUF stamp duty - ca. 5,2%).
• solicitor's fee: 1,5%
• permit fee (Administrative Office of Budapest): ca. 250 Euros (only applies when purchasing your 2nd property in Hungary or you are from outside of EU)
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