“Paying tax twice is a real danger for foreign property owners” – an interview with Krisztian Cornides, Chartered Accountant, Finance Director of Tower-International.
Is it necessary to pay income tax on rental income in Hungary if somebody has already paid it at home?
Hungary signed double taxation treaty with more than 80 countries. (Full list available here) These agreements and regulations help to avoid the situation to pay tax on the same income twice. The logic of these agreements in relation to property related income is to pay the tax in the country where the property is located. If somebody had rental income in Hungary the tax must be paid in Hungary according to the local regulations. The tax office in the property owner’s home country can claim the difference if the tax rates are different but as a principle the tax must be paid locally.
What happens if somebody was not aware of this and paid the tax back home on all their income including the rental income in Hungary?
Unfortunately, there is a real danger of paying tax twice. The Hungarian National Tax Office is able to check bank transfers.
If your tax return has not been submitted and they discover income then they will calculate the real tax liability. This is bad for the property investors in more than one way. First, it will give the tax man the job calculate your tax base. Believe it or not – if you let them do the job, they will do it their way. Secondly, that will incur unnecessary fine. This is why you need a professional accountant to do it for you.
Summarizing the following amounts might be claimed if the calculation is done by the tax man:
• the calculated tax liability
• 50% fine of the above amount because of the non-payment
• late interest
• penalty for not submitting a tax return (up to 200.000 HUF)
What happens if it turns out that there are unpaid liabilities?
The Tax Office can start an international collection process. So one day the property owner will receive an official letter from the revenue office of his own country stating that the Hungarian Tax Office as well claims an income tax. Regardless of the base amount, just the interest on the significant amount will rise after years of outstanding tax. Not only that, at the same time the Hungarian authorities can place mortgage on the property as well to make sure that their claim will be collected somehow…
Can somebody claim back the paid tax from the tax office of the home country?
If the tax liability is already paid in Hungary and the property owner can prove it than it is possible! You have to refer to the double taxation treaty and show the proof of the Hungarian tax payments. It may not be a simple procedure and the home country’s regulators view should be taken into account, but in principle the over payment should be rebated.
How do I know if I have outstanding tax liability?
It may sound stating the obviuous, but you need an accountant looking after these issues and making sure that everything is in order. If it is not the case then you need to have an authorized person who will contact the Hungarian Tax Office and check the records. Tower-International looks after the tax issues of hundreds of overseas property investors and helps them not only to avoid this kind of issues but also to minimize the payable tax.
Former articles:
Paying tax in Hungary? What is tax?
Why 'cheap' is more expensive? Two ways of doing tax in Hungary – Simplified or Itemized
Do I have to obtain tax ID in Hungary if I want to rent out my property?
How to Rent Out Your Property and Escape from Paying a Fine
