USA2somewhere
3/30/2015 14:04 EST
Hello All,
So here is my situation. I am an American married to a Hungarian women and we have a little girl who is 9 months old. I have been to Hungary a number of times and do have a good time when I go and can in the future imagine living there. I am a flexible person, I have lived all over the USA and England so adaptation is not new for me. I personally have some concerns with moving to Hungary related to politics and culture but I am potentially willing to overlook this based on low cost of living and the fact that my wife has many family and friends there that can help us in raising our family. If I do move to Hungary I do not plan of getting a job on the economy and would rely on pension and investment income to sustain my family. The goal would be spending rate of $3-$5k a month at whatever the current exchange rate is.
I am considering buying an apartment in Budapest and I would like to rent it out. Long term plan would be to either use it as a residence for my wife and myself or an income property to help diversify my portfolio (income property first). I do think that now is a good time to buy (by "Now" I mean sometime this year) due to the favorable exchange rates and my belief that long term (5-10 years) exchange rates will normalize, the euro will survive and Hungary will move to the Euro. I am considering spending $100,000 for the property (cash) and would be satisfied if I could make 7%+ ROI (annual return of $585 a month after all taxes, maintenance, fee, repairs, etc).
This leads me to my questions. What local taxes must be paid on rental income? Are there issues with properties being joint owned by an American and Hungarian? If I wanted to bring my own items to Hungary because I am moving there would there be an import tax on those items? What is the cost for an American to get private health care in Hungary? Would my pensions and American investments be taxed if I live in Hungary? Thank you for your time.
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borschelrh
3/30/2015 14:36 EST
I can try and answer some of your questions. I am also an American living in Hungary on a pension along with some investment income which is fine for us. $3000 a month here is a very nice lifestyle. An investment property is IMHO a bad idea and you might be very lucky to get rent in the $200 a month range before expenses. Property values are declining not increasing and this trend is likely to continue for a long time. So, I wouldn't count on making money on real estate. On the other hand there is no property tax per se except for a city tax which is ridiculously low compared to the US. You can safely have an apartment in Budapest and make a small amount from it but it will be relatively insignificant. I have friends with apartments in Budapest who are lucky to have tenants who don't ever actually live there. They rent these apartments to get a foreign address so as to avoid taxes in their own countries within the EU. It is fraudulent but this is the way things are here in the EU and no one is the wiser to it. I would invest the money in a house in a rural area, perhaps in the Lake Balaton area and enjoy your retirement. $100k will get you a fabulous place. I cannot answer about taxes on rental income so will defer that to someone else. I know here in our area which is a tourist destination there is a fairly substantial hotel tax for people running B&B's. However, that is a very lucrative business and most people in our area make enough in the 3 months to live well the rest of the year even paying these taxes. So, perhaps this is something you can consider as an alternative. We love it here and consider it paradise. Hungary is an interesting and wonderful country. Yes, the politics can be somewhat bizarre but not especially different from the craziness in the US. More or less it hasn't impacted on us all that much. I keep hoping some sanity will happen and these dumb ass rules like closing businesses on Sunday or the 27% VAT will eventually go away. Generally though Hungarians are a remarkable people and it is a great place to live. We do not regret retiring here at all.
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borschelrh
3/30/2015 14:49 EST
Reading your post again I missed a few points. Your pensions and investment income are taxed in the US and there are treaties preventing dual taxation so are not taxed here. Foreign earned income is not taxed for the first $135k but you must file taxes in the US (no matter what and no e-filing is available) and you must report all foreign bank accounts and any day of the year that your accounts exceed $10K. Not too hard to do if you have multiple pensions and the local banks do not track that data so it is on you to come up with this information. It is only a $10K fine if you screw up or 50% of all of your assets whichever is greater. Isn't it wonderful how much our government helps us? Thanks to the FATCA laws our Congress enacted we are subject to some serious invasions of personal information with very heavy penalties for non-compliance. So, be very careful to file all the forms required as there are huge penalties. BTW a recent law passed makes it mandatory to surrender your passport if your tax liability exceeds $50K and that is without proof or court review. Anyway, you get the picture and if you are careful you can avoid the landmines our Congress has placed to trap us expats. I have my pensions direct deposited here so there are no wire transfer fees. You would think that my government pensions being deposited to foreign accounts that I wouldn't have to do all this nutty reporting but no this is what we have to deal with now. If you live overseas then you must be a criminal. We use K&H bank which is compliant to the US FBI FINCEN so they still accept US customers. Some banks are rejecting US customers due to the stupid and difficult reporting requirements. This is not unique to Hungary and all expat Americans are facing these issues. Really it isn't all that bad but you must be careful. I get that they are trying to hook the big fish but us little fish are getting punished instead. This is the reason that people surrendering US citizenship is doubling every year.
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peddington
3/31/2015 08:56 EST
Greetings,
You have been to Hungary so I don't have to tell you about the 27% sales tax, despite which prices are fairly good in the stores. But of course this applies to your electricity, gas and any repairs (unless you do it under the table which is illegal). I do want to mention the rental you brought up. The amount you seeking is about 162,000 forints. For rental that is very high considering Hungarian incomes. 162,000 forints is a very,very good pension in Hungary for example. Likely you could rent it to a foreigner or a company however because they can afford it. Good luck!
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Hotjazzman
3/31/2015 10:36 EST
borschelrh's advice is sound.
I'd like to add, that your view from the US is not really sound; your American investment strategies may, or may not work HERE.
Real estate: The prospect for appreciation is not sound in a country where: 1. The population is decreasing, so as the old die, more housing becomes available. 2. Housing construction practices are for buildings to last a long-long time (all solid masonry). 3. 90% of the population owns it own home, with only 24% having any mortgage. (US numbers are: 63% and 75% - respectively).
However, buying an apartment is not a bad idea, for steady rental income should the $ hit the skids. Should that happen, your US pension will not come, or not buy much. (History is full of these kind of scenarios). I have seen the U$ at almost 300HUF (around yr 2000) to as low as 160HUF 6-7 years later. Forget the 7%ROI. We are in a 0% and negative interest rate world.
This (renting an apartment) is insurance(!) that you can eat and heat, should the U$ tank - not an unlikely possibility. You CANNOT rent a 27million HUF Budapest apartment for 160000HUF /month + condo fees (about 20-25K+ HUF in that price range). Forget it. The income is not there to support it. Plus, there is 16% straight tax on the gross rent (excluding the condo fees). You can deduct repairs and maintenance costs (receipts are a MUST) - but they are still tricky. There is a purchase tax of a dwelling of 4%.
As for the Euro? Nobody knows if the Euro will survive. It has serious problems; the Czech Republic just postponed its joining the Eurozone until 2020, and it's not b/c the Czech economy is unfit for the Euro even right now. They just have doubts - evidently - so do millions of other Europeans...
OTP Bank also cooperates with FATCA. Don't ask, what I think of FATCA, it's unfit to print...
You can bring your stuff in tax-free but you must prove 1 year-plus outside-of-EU residency and the items must be personal things; furniture, clothes, car(s), etc; no construction materials, no machinery, no business equipment/vehicles, etc. For the outside of EU residency proof you WILL need utility bills (hard copies) and likely bank statements, doctor bills (if any). If you are on electronic payment plans, put an end to it now, go back to hard paper copies; they demand ALL 12 months, 11 just won't do. I've been there... (was no fun).
Paddington is just mindlessly repeating this 27% VAT tax mantra - which really is a consumption tax which was proposed in the US 20-30 years ago, together with a flat rate personal tax. Guess what: HU has done it, the US has not. There is only one personal tax bracket, 16%.
Two or three weeks ago it was announced, that they intend to bring it down from the 16% to 9% - FLATrate for all.
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USA2somewhere
3/31/2015 12:09 EST
Thank you everyone, you have given me something to think about. Maybe I'll hold off for a bit. regarding the 27% VAT, I think that is crazy high and I think the cost of purchasing consumables in Hungary is significantly more than what I am used to paying even with the sales tax in Texas, but like I said I am willing to accept it if I move there.
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johnnyatkinson
3/31/2015 12:16 EST
Great prospective news on the income tax.
As a Canadian citizen I am not subject to FATCA. If I can be of assistance just write me.
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IgorP
4/13/2015 04:01 EST
hi, Usually renting smaller apartments is easier and more profitable:you can rent a 50m2 apartment in BUD city center for 100.000 HUF but a 100m2 only for around 140.000HUF. So my suggestion for that money buy 2-3 smaller ones. there is a flat 20% withholding tax for renting apartments. Better to pay and avoid issues with authorities. In Budapest average net salary is cca 1000 eur, health insurance if you are not covered by your employer, you need to pay cca 5000 HUF per month. hope above helped.
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IgorP
4/13/2015 04:01 EST
hi, Usually renting smaller apartments is easier and more profitable:you can rent a 50m2 apartment in BUD city center for 100.000 HUF but a 100m2 only for around 140.000HUF. So my suggestion for that money buy 2-3 smaller ones. there is a flat 20% withholding tax for renting apartments. Better to pay and avoid issues with authorities. In Budapest average net salary is cca 1000 eur, health insurance if you are not covered by your employer, you need to pay cca 5000 HUF per month. hope above helped.
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