On 19 July 2011, it became possible to establish real estate investment trusts (REITs) in Hungary.
The key features of a REIT with its registered seat in Hungary are:
- it may only operate as a public limited company with initial capital of at least 10 billion Hungarian forints
- it may issue only ordinary shares
- 25% of its total registered capital must be in public ownership (i.e. they may not be owned by strategic investors and/or any individual holding more than 5% of the nominal value of the total shares)
- no more than 10% of its shares can be held by insurance companies or credit institutions
- no more than 10% of the shareholder voting rights may be exercised by insurance REITs companies or credit institutions
- at least 90% of any distributable profit must be paid as dividends within 15 days of the approval of its annual report
- it must be registered with the state tax authority
- it may only carry out real estate sale, leasing, operation, property management and asset management activities
- it may hold foreign real estate and project companies
- both the REIT and its project company are exempt from local (i.e. business tax) and corporate taxes and are subject to a reduced rate of 2% transfer tax on real estate acquired
- only its shareholders have to pay tax on the income from dividends and foreign exchange profits
- it may not hold shares in any companies other than REITs, its project companies or other companies carrying out construction projects as their main activity
- it should have a (directly and indirectly held) real estate portfolio with a value of at least 70% of its balance sheet, including no more than 20% of its balance sheet total invested in a particular real estate or shares in other REITs
The tax exemptions are likely to make REITs attractive to Hungarian real estate developers and investors, which should help to encourage a resurgence in the Hungarian real estate market.
Law: REIT Act
