In Hungary, foreign private persons and legal entities (hereinafter referred to as "foreigners"), as well as corporations established by foreigners or operating with foreign participation, incorporated under Hungarian laws (hereinafter referred to as "domestic corporations") may acquire ownership of real estate according to the rules described bellow.

1. General Rules

In Hungary, a contract on real estate in connection with rights realized by registration into the Land Registry, thus a Purchase Agreement, may validly be concluded in writing. The Purchase Agreement must be countersigned by an attorney or a public notary and signed by two witnesses.

A Purchase Agreement countersigned, a power of attorney, and an application for registration of an ownership, as well as other required documents (for instance in case of paying the purchase price in installments the certification proving that the purchase price had been fully paid, if the property is mortgaged the consent of the mortgagee or the certification of the property disencumbered etc.) must be submitted to the Land Registration Office in order to be registered.

Following the submission of the Purchase Agreement the Land Registration Office competent by the location of the real estate indicates the application for registration of the ownership on the ownership sheet as a so-called side-note. The side-note means that an application has been submitted to the Land Registration Office, but it has not yet been examined and registered. The side-note should be indicated on the ownership within 24 hours from the submission of the application, which deadline is to ensure authenticity, fidelity. After a longer or a shorter period of time (it may be some weeks in little settlements, while in some districts of the capital city it may be as long as 3 years) the Land Registration Office incorporates the ownership into the Land Registry after due examination of the documents.

The transfer of the ownership incurs a duty liability (see section 5. of this article). The purchaser is required to pay duty to the State according to the order passed by the Duties Office. The order is delivered in writing to the new propitiator's address usually before the incorporation of the ownership, in which case the imposed amount shall be paid as a duty advance.

2. General Prohibition of the Acquisition of Agricultural Land

As required by the Act LV. of 1994 on Agricultural Land no foreign private persons or legal entities may acquire ownership of agricultural land, and no domestic legal entities (incorporated in Hungary) may acquire ownership of agricultural land and protected nature area.

Generally agricultural land is a plot of land which is registered as a plough-land, vineyard, orchard, meadow, reeds and forest or as a fish-pond in the outskirts of a settlement. The above mentioned prohibition does not refer to the following ways of acquisition: the acquisition of the ownership by intestate inheritance, adverse possession, building in, expropriation, and acquiring ownership in the course of auction with compensation coupons. In these cases there is no need for special authorization to acquire an ownership.
A contract which is contradictory with the above mentioned prohibition is invalid therefore the registration of the ownership will be refused by the Land Registration Office. Foreign private persons and legal entities, as well as domestic legal entities may conclude contract on usufructs lease pertaining to agricultural land for no more than 10 years.

3. Rules on Direct Acquisition of Property by Foreigners

Foreigners may acquire ownership of real estates not qualifying as agricultural land (houses, buildings, plots of land located in residential areas, industrial areas etc.) according to the previsions of the Government Decree No. 7/1996. The authorization granted by the head of the competent metropolitan or county administration office is required for registration of ownership. An essential condition of granting authorization is a declaration of the mayor of the local government where the property is located stating that acquisition of such ownership does not interfere with municipal interests. In the lack of such declaration the authorization must be refused by the head of the administration office.

Besides the mayor's declaration a document verifying the foreigner's citizenship (passport, residence permit, certified excerpt of the corporation), a copy of the contract on the acquisition of the real estate, a copy of the ownership sheet not older than 3 months, a tax certificate and a value certificate not older than 3 months issued by the local government, and an original certificate issued by a bank verifying that the purchase price is available in Hungarian Forints, and verifying the origin of such amount.

If the purchase price is paid in installments the payment of the first installment shall also be certified.

If a foreigner intends to acquire ownership by means of donation he is required to prove the relationship and the degree of the relationship between the contracting parties.

In proceedings concerning the acquisition of ownership of listed real estates or real estates of listed nature and of real estates of protected archaeological and historical importance, furthermore of buildings located in a nature conservation area, the consent of the authority competent on the basis of the type of protection and that of other authorities shall be attached to the application for acquisition of ownership.

In case of fulfillment of all requirements mentioned above and possession of all supplements, and if the foreigner received an immigration permit, or the foreigner exchanges a real estate he owns in Hungary for another real estate in Hungary or the purpose of acquiring the property is to terminate joint ownership, or the foreigner had been residing in Hungary for the purpose of performing work for at least 5 years, or the foreigner is donated the ownership of real estate in Hungary by his close relatives, the acquisition of the real estate must be authorized by the administrative office with no deliberation.

According to experiences of my office the procedure mentioned above requires at least 3 weeks but no more than 2 months starting from the date of the signing of the Purchase Agreement .

The present Hungarian practice shows, that although it is possible to refuse the foreigner's application for registration of ownership, but it actually happens in very few cases, 1 to 2 percent of the applications are refused.

4. Indirect Acquisition of Property

Ownership of real estate may be acquired indirectly by economic associations operating with foreign participation or economic associations founded by foreigners. Considering that such associations shall be qualified as domestic in every respect (as provided in Act XXIV of 1988 on the Investments of Foreigners in Hungary), they may acquire ownership of real estate which do not contradict to the earlier detailed general prohibitions of acquisition as agricultural land with no special permission procedure.

The Act declares that the investments of foreigners in Hungary shall enjoy full protection and security. Any damages incurred by foreign investors in respect of their property, as a result of nationalization and expropriation shall be immediately indemnified at the actual value. The amount of indemnification shall be paid to the beneficiary in the currency of the investment. Foreigners may establish economic associations operating with participation of foreign or Hungarian natural persons or legal entities without the permit of the foreign exchange authority in order to perform any kind of economic activity not precluded or restricted by law. Economic associations operating with foreign participation and economic associations founded by foreigners shall pay corporate tax as defined by Hungarian laws. Both foreigners and Hungarian citizens may be senior officers, managers, supervisory board members and employees of the economic association.

5. Obligation of Payment of Duties and Attorney's Fees

Duties must be paid in case of acquisition of ownership of real estates. The rate of the duty depends on the way of acquisition, quality or type of market value of the property (Act XCIII of 1990 on Duties, hereinafter: Act on Duties).

As a general rule, the basis of the duty to be paid to the State is the market value of the property.

Generally, the Duties Office accepts the purchase price defined in the Purchase Agreement as market value, as well as the actual value of the property, however, if it is too low, the Duties Office is entitled to establish the real value of the property by way of estimating it, and shall impose a duty in accordance with the estimation. In case of inheritance a public notary establishes the value of the property. The basis of the duty must be reduced by the value of the rights of pecuniary value related to the property, in the first place by the value of usufruct. To calculate the value of the usufruct, Act on Duties applies a special formula depending on the prospective lifetime and the value of the property.

The Act on Duties provides more favorable rules to the properties for dwelling purposes. Consequently the properties that are not registered as apartments or houses are subject to duty according to the general rules.

If the ownership of a real estate shall be acquired as a gift or an inheritance, the obligation of the payment of duties which must be paid to the State, will be calculated in accordance with the rules detailed bellow, considering the fact that the Act on Duties establishes more favorable provisions for housing property.

In case of onerous transfer of property the general rate of the duty is 10 per cent of the amount of the value market.

In case of the acquisition of a housing property, the rate of the duty is 2 per cent if the market value of the property does not exceed 4 million Forints. In case of a property more expensive than 4 million Forints this rate is 2% plus 6% of the value above 4 million Forints.

In case of the exchange of the ownership of properties that are not for housing purposes, the basis of the duty is the actual value of the acquired property. In case of exchange of apartments, the basis of the duty is the difference between the market values of the apartments exchanged.

If the purchaser sells the housing property acquired within 1 year following the purchase, the basis of the duty is the difference between the market values of the property when purchased and sold.

If the purchaser sells the ownership of several housing properties within 1 year, only the value of the property directly preceding the purchase of the house may be deducted from the value of the property acquired.

Entrepreneurs and corporations dealing with selling and buying of properties as a main activity are to pay 2 per cent of the value of the properties as duty, regardless of the number of buying and selling, the value and type of the property.

The duty exemption granted in case of building of houses or buildings for housing purposes, detailed above shall also be applied in connection with donation and inheritance of properties.

There is a possibility to appeal against the injurious order of the Duties Office in which it imposes duty. The appeal may be grounded on the rate and on the basis of the duty. The order always provides exact direction as to the possibility of legal remedy indicating the deadline which is usually 15 days from the date of delivery. An application to pay the duty in installments or an application to delay the payment obligation may be submitted to the Duties Office, which shall be judged according to the financial circumstances of the applicant.

In Hungary the retainer is always subject to negotiation between a client and an attorney, regularly it is 1 to 3 per cent of the market value of the property, which is generally paid by the party who gave the power of attorney. It is also possible to share the expenses.

In the case of a property having enormous value the client may be given a discount.

The information in this newsletter is correct to the best of our knowledge and belief at the time of going to public. It contains only basic information and specific advice should be sought, however, before investment and other decisions are made.