VAT treatment of property sales and rentals and other year-end tax tasks

As the year draws to a close, businesses should review the various elections available under the Hungarian tax system at year-end. In this issue, we focus in particular on the VAT treatment of property transactions.

As a general rule, property rentals and sales of developed property that does not qualify as new are exempt from VAT. However, businesses may opt to tax either activity. This election can be made when the activity commences, either on incorporation or before the first transaction. If a company is already carrying on the activity, the election may only be changed at year-end, and only once five years have elapsed since it was made.

It is therefore important to consider at year-end what property transactions the company expects to undertake over the coming period, in practice over a five-year horizon, and how to achieve the most favourable VAT treatment. The relevant election should be made or amended accordingly.

Property-related VAT elections are not the only matters to consider at this time. Subject to the other eligibility conditions, year-end also provides an opportunity to make or amend the following elections, among others:

• Changing the currency in which the company keeps its accounts, for companies whose financial year follows the calendar year.
• Opting out of the small business tax (KIVA) regime.
• Although a company may, in principle, opt into KIVA in any month, aligning the change with the financial year-end may be practical. This is therefore a good opportunity to assess whether KIVA would be more favourable for the company.
• Establishing a corporate income tax group.
• A VAT group may also be established in any month, but it may be practical to align this with the financial year-end.