The application of the reduced VAT rate of 5% for new residential properties supplied until 31 December 2023 and the VAT obligation of the transfer of vouchers without consideration

In relation to the amendment of the various tax laws earlier this year by the Act Nr XLI of 2018, the major modifications in terms of VAT adopted by the Hungarian Government on 13 November 2018 concern on one hand the extension of the application of the reduced tax rate of 5 % for so called new residential real estate properties as defined by the Act Nr CXXVII of 2007 on the value added tax (“Hungarian VAT Act”). The other significant adjustment concerns the application of vouchers.

Extension of the application of the reduced tax rate of 5 % for so called new residential real estate properties

Based on the newly adopted rules the deadline of the application of reduced tax rate of 5% is extended for new residential properties supplied until 31 December 2023. The Hungarian VAT Act defines new real estate property as

• a property that has not yet been occupied before the supply took place; or
• a property that has already been occupied before the supply took place but the period is shorter than 2 years between i) the date of the final occupancy permit and the date of supply, or ii) in case of acknowledgment procedure, between the date of acknowledgement of occupancy and the date of supply, or iii) in case of simple notification procedure, between the date of the issue of the official notification certificate and the date of supply

under the condition in all cases that useful net floor area (as specified in the relevant law) must not exceed the size of 150 m² or in the case of single-dwelling real estate the size of 300 m².

At the time of its introduction in the law on 1 January 2016, the reduced tax rate could be applied until 31 December 2019. However, due to some difficulties in the correct interpretation of the relevant provisions (e.g. the date of supply) and due to the lack of employment in the construction sector, after consultation with the professional organizations concerned the Hungarian Government decided on the extension of the deadline of the reduced tax rate.

Therefore, as mentioned above the reduced tax rate of 5% can be applied for the sale of new residential properties supplied until 31 December 2023 provided that

• in case the construction is subject to a building permit of the competent building authority, the relevant final building permit was issued on 1 November 2018, at the latest, or
• in case the construction is subject to a notification procedure of the competent building authority, such notification was made on 1 November 2018 at the latest.

Specification of the VAT obligation of the transfer of vouchers without consideration

In the frame of the implementation obligation, the 2016/1065/EU directive on vouchers was basically transposed into national law already by the act Nr XLI of 2018 adopted earlier this year. The recent amendments affect the VAT treatment of the supply of vouchers without consideration. Namely, in case the VAT of purchased goods/services was deductible in relation to the voucher sold without consideration, such supply of vouchers – except the supply by the issuer of the voucher – constitutes a taxable supply, and so falls within the VAT.

The rules are applicable for vouchers that will be issued – as initially planned - starting from 1 January 2019. Entities, applying vouchers in their sales activity are affected with the new rules.