Changes To Hungary’s Property Tax Following Constitutional Court Decision

In its decision of 26 January 2010, the Hungarian Constitutional Court repealed the residential property-related provisions of Act LXXVIII of 2009 on the taxation of high-value property (HVP Act).

The Court reasoned that the market price of real properties as defined by the HVP Act is uncertain, and therefore taxpayers will not be able to comply with the requirement to asses the market value of the real properties they own.

In addition, the Court ruled that the HVP Act gives the Tax Authority broad powers to impose penalties, and by this the responsibility for assessing the market value rests entirely with the taxpayers. As a result, the Court ruled that the HVP Act’s residential property-related provisions create legal uncertainty and are therefore unconstitutional.

However, under the HVP Act, the owners of high-performance passenger cars, boats and aircraft (as taxable high-value property) will still be liable to property tax.

Persons or organisations will be required to pay property tax on a particular taxable high-value property if they owned that property on the first day of the year.

The property tax will be determined on the basis of the following: for passenger cars, the car’s rated engine output (calculated in kW); for boats, the size of the sail area or the output of the main engine; for aircraft, the maximum take-off weight.

Private individual taxpayers must submit their returns on taxable high-value property using form 0953-1042, at the same time as their personal income tax returns. Private individuals who are not required to file personal income tax return, or if their employer prepares the personal income tax return on their behalf, must submit their property tax return separately, using form 1042. Sole traders and private individuals required to pay VAT must submit their property tax returns by 25 February 2010; for all other private individuals, the deadline is 20 May 2010.

Non-private individuals required to submit a tax return must comply with their property tax obligation as follows: taxpayers liable to pay corporate income tax will have to file their property tax returns at the same time as their corporate income tax returns. Taxpayers who are required to pay simplified entrepreneurial tax (known by the Hungarian acronym "EVA") and who come within the scope of the Accounting Act must submit their property tax returns at the same time as their EVA returns.

The deadline for both groups is 31 May 2010 and form 1042 must be used. Taxpayers who use a non-calendar financial year and are liable to pay corporate income tax must submit form 1042 by 31 May 2010, separately from other returns. The deadline for EVA taxpayers that are outside the scope of the Accounting Act is 25 February 2010.

Non-private individual taxpayers who are not required to submit corporate income tax returns or EVA returns must submit a separate property tax return by 20 May 2010, using form 1042.

High-value property tax must be paid in two equal instalments. The first will have to be paid when the return is filed, while the second will have to be paid by 30 September of the tax year in question."

Source: Portfolio Online Financial Journal