The act on real estate investment trust (shortly in Hungarian: SZIT) was published on 19th July in the Hungarian Gazette. With this act n the international real estate market as known REIT was introduced to the Hungarian legal system. The Hungarian lawmaker implemented the real estate investment trust into the Hungarian law as “Regulated Real Estate Company”.

REQUIREMENTS ON HUNGARIAN REAL ESTATE INVESTMENT TRUSTS The status of REIT is only available for corporations which are registered as such by the NAV (the National Tax and Customs Authority), as far as they suit to the conditions laid down in the act on real estate investment trust.
The act defines free float minimum, which is 25%. Accordingly to this the limited series are at least 25% comparison to the complete capital. The owners’ one by one - directly or indirectly- can have less than 5% participation of the series’ total nominal value. The regulated real estate investment company may issue only common stock and the denomination cannot be less than ten thousand forints. The shares issued by the regulated real estate investment company can be owned by the insurance and credit institutions all together 10% maximum, and the insurance and credit institutions can have vote right tops up 10%.

AFFILIATE COMPANIES OF HUNGARIAN REAL ESTATE INVESTMENT TRUSTS The Hungarian Real Estate Investment Trusts are not allowed to have any share in other companies, except in other Real Estate Investment Trusts, Project Companies and companies deals with organization of building projects.

PROJECT COMPANY OF THE HUNGARIAN REAL ESTATE INVESTMENT TRUST The act defines the concept of Project Company: It is owned by a REIT or pre-REIT in 100% and pursues only activities attached to real estates listed in the act and do not have a share in other companies. It is important that Project Companies are obligated to pay the 100% of the profit, as dividend to the Real Estate Investment Trust. Special rules are applicable to the foreign capital elements of the Project Company of the Hungarian Real Estate Investment Trust: the foreign sources indicated in the financial report cannot exceed the 70% of real estates’ value indicated in the financial report.

ASSETS OF THE HUNGARIAN REAL ESTATE INVESTMENT TRUSTS The regulated real estate investment company’s starter capital is 10 billion forint (approx. 40 million EUR, 50 million USD). The 70% of the regulated real estate investment company’s balance sheet total needs to be invest into real estate portfolio and a single real estate’s value cannot exceed balance sheet total’s 20%. The regulated real estate investment company may hold only government securities, bourse securities , bank deposit and above shares. The real estates of REIT and Project companies need to be appraised in every quarter. The 90% of the REIT’s profit need to be paid as dividend in 15 days after the acceptance of the financial report.

PRE-REAL ESTATE INVESMENT TRUST IN HUNGARY In addition the act introduces the concept of pre-REIT. Pre-REIT is a company which does not meet the requirement for REIT (for example the requirement of the free float), but undertakes to meet all the requirement to be registered as REIT in one business year after the registration.

TAX AND DUTY LIABILITY OF REAL ESTATE INVESTMENT TRUST IN HUNGARY The REIT, pre-REIT, and Project Companies are the subject to corporate tax; although they are not obligated to pay the taxes until the REIT’s, pre-REIT’s, Project companies’ affiliate companies don’t make transactions, which results the application of transfer pricing correction (in this case the tax have to be paid on the difference in double). All three forms are free from the local business tax.

The duty on acquisition of property payable by the REIT and the Project Company 2% rate in contrast to general 2-10% rates. These congenial terms are applicable, if the asset acquisitor, or owner (in case of Project Companies) takes on in a statement that by the end of the year when the duty obligation is sprang accomplish the pertinent rules of becoming a REIT. The 2% fee rate is allowed to apply by the pre-REIT, and its Project Company, if states that later gets the REIT status. If the conditions are not met, additionally the discount on duty shall be paid in twice to the tax authority.

If the pre-REIT is not approved as REIT, or rather sells its’ Project Company, or voluntary dissolution is applied to the Project company, then the pre-REIT has to pay the used corporate and local business tax discount’s twice to the tax authority.

International aspects REITs can own real estate outside of Hungary, this not affect the privileges operating as REIT, because of this does not lose the status. REIT can be suitable for real estate investors finally invest their money into a safe and favorable tax form. With this Hungary can become the financial centre of the Central and Eastern European region.

September, 2011.

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