Rules and inspection of exemptions from duties

The information letter recently released by the tax administration (‘NAV’) is useful for those who are about to buy land as it not only explains the rules on land acquisitions exempted from duties but also advises on the inspection of the compliance with the said rules.
 
The tax administration accepts the undertakings of the conditions for exemption from duties simply on the grounds of the statement made by the beneficiary but may process a tax audit for the fulfilment of the conditions anytime during the 5-year period. The risk of the violation is a real “double or nothing game” since the fraudulent beneficiary will be obliged to pay the double of the originally payable duty.
 
According to regulation of the Act on duties (‘Itv.’), in case of the acquisition of a land for consideration by a beneficiary who qualifies as farmer, the beneficiary is exempted from the payment of the duty if he/she is willing to undertake the fulfilment of the following three conditions for 5 years from taking possession – beyond other terms stipulated by the Itv.: The beneficiary

• won’t alienate the ownership of the land;
• won’t establish rights of pecuniary value on the land and;
• will utilize the land as self-employed, primary agricultural producer or family farmer for agricultural or forestry purposes.

The information letter focuses on the amendments of the referred regulations effective from June 16, 2016 (presumably because of the anomalies of its practical application) which make it possible to acquire a land without paying a duty even if its encumbered by a right of pecuniary value. However, in this case, the farmer will have to undertake the above terms for 5 years from the termination of the right of pecuniary value.
 
The act prescribes also a five-year period to terminate the right of pecuniary value existing upon the acquisition of the land thus the NAV particularly advises that it is unlawful to use duty exemption for those farmers whose land is encumbered by a right of pecuniary value at the time of the acquisition of ownership which cannot be terminated ­­­– either by contract or by law ­– within 5 years.
 
Therefore, it is worth thinking over the possibilities of exemptions from duty and preparing the beneficiary’s declaration carefully since the NAV inspection may occur at any time during the five-year period.
 
If you have further questions about the sale of land or related rights of pecuniary value, please feel free to contact our experts at Ecovis Hungary Legal. We are at pleased to assist you!