Although we have a one-rate taxation system ( 15% from 01.01.2016 ) in Hungary, the calculation is not equally proportionate to the annual letting fee because over 1 million forints received you are obliged to pay also a 14 % health contribution ( EHO ) . The base of taxation is the earning which is the difference between the income and the items to be deduced. However there are some special rules to remember about EHO.
The sum , calculation and declaration of Personal Income Tax ( SZJA ) and health contribution ( EHO):
The earning deriving from the letting of a property is to be taxed in Hungary ( not everywhere int he EU )
The base of the tax is the income minus the total expense ratio according to the tax advance declaration, therefore the EARNING ( please note that int he absence of this it will be the total amount of your income ). The tax payer can choose 1 from 2 forms of taxation. The first option is the flat-rate cost accounting, i.e. 90 % income rate or the item-based cost accounting.
The SZJA and EHO total are not to be calculated from the gross letting fee ( income) but it is the 15 % ( SZJA ) and the 14% ( EHO ) of the sum calculated according to the chosen method as your earning.
I.) FLAT-RATE COST ACCOUNTING : if you choose this method, 10 % of your income can be considered as expense, therefore deduced from your tax base without any certification or invoice. :
EARNING= 90 % of your INCOME
E.g. in case of a monthly 100.000 ft letting fee : 100.000 Ft- 10% = 90.000 Ft is your earning.)
SZJA= 16 % of your earning ( 90.000 Ft x 0,16=14.400 Ft )
EHO: in case of an earning of 1 million Ft the 15 % EHO is to be paid for the WHOLE SUM , i.e. including the 1 million Ft. With the same example : the EHO in this case is : 90.000 Ft x 0,14 = 12.600 Ft / month .
Important: It is a mistaken interpretation that under 1 million Ft you don’t pay tax! In the case of an income under 1 million Ft deriving from letting ( no other income to be considered here ), you do pay SZJA but you don’t pay EHO which is to be paid only if your earning is over 1 million Ft but in that case the whole sum is to be considered and not only the part above 1 million Ft
The limit of 1 million Ft without EHO ( but not without SZJA ! ) refers to your earnings and not your income !!! It must be calculated as the following : deduce the chosen cost ratio from your monthly letting fee ( in our case it is 10 % = 90.000 Ft ) and multiply it with the number of months as long your property was let during the calendar year
II.) ITEM-BASED COST ACCOUNTING: if you choose this, you can deduce the expenses that normally occur when you keep up a property. E.g.:
- the invoice certified expenses of refurbishment,maintenance, reparing, etc.
- the utility fees if the 2 parties fix as a condition in the contract that the lessee is going to pay the condominium fee and the utility bills as part of the monthly rental fee. In this case these fees can be deduced as expenses
In this case you have to calculate like this:
EARNING= INCOME minus the ratio of the item based cost accounting, the 15 % of which is the SZJA and 14 % the EHO. The EHO is similarly to be paid only over 1 million Ft.
Whichever way we choose for cost accounting logically we always have to count with a calendar year and multiply the monthly earning, not income ! with the number of months as long as the property was let.
WARNING! The invoice or financial document must be always issued based on the GROSS ( increased with tax ) sum.
- Lessor can only be the owner or the usufructuary of the property ( in this information sheet we are not going to talk about rare exceptions from this rule )
- The 1 million Ft limit refers to the property not the owner(s). In case of a shared ownership for a property ( e.g. matrimonial community of goods ), unless the owners agree on other terms, the ratio of tax payment is to be considered equal to the ratio of their ownership in the property. E.g. in case of a couple there is no point in dividing the income from the letting between the 2 of them so as to avoid payment of EHO as the earning refers to the property and as this, the EHO needs to be paid over 1 million Ft.
- If the lessor has earnings from more properties, they add up and if the result is over 1 million Ft the EHO must be paid for the whole sum. The 1 million Ft should be deriving only from lettings earning, nothing else like salary or income from other activities must be contracted with it.
- in case if the lessor reaches the annual limit of 450.000 Ft EHO ( contracted all the incomes where you paid EHO ), no more EHO will be deduced and if the lesse is a company they must be notified about this fast so that afterwards they only deduce the sum for the SZJA and the remaining sum must be paid or transferred to the lessor.
- if the lessee is a private person it is the lessor’s duty to pay the tax advance fixed according to the rules previously described to the appropriate tax account quarterly int he following 12 days after each quarter. The sums paid like this must be considered as tax advance at the end of year tax declaration
- if the lessor has health insurance in another country of the EU he /she is free of the obligation of the EHO payment under the condition that he/she certifies this fact with a legal document issued by the tax office of the other EU country
- An invoice containing VAT can be issued by the lessor only if he / she has the activity of letting properties of his ownership ( e.g. office buildings ) in the list of his activities and he is registered int he VAT circle as the letting otherwise is not subject to VAT not even if a VAT subject does it.