In order to stimulate construction investments, the legislator introduced the preferential 5% VAT rate on residential properties in 2016. Although the scheme was planned to be phased out several times, it has ultimately been extended on each occasion, meaning that the reduced rate will remain in force in its current form at least until December 31, 2026.

The sale of newly built residential properties is subject to the standard 27% VAT rate if they do not meet the specific conditions set out in the VAT Act. For developers, it is therefore of particular importance to remain within the scope of the reduced rate – an incorrect tax position may result in a 22-percentage-point VAT difference, posing a risk significant enough to undermine the profitability of entire condominium projects.

The Hungarian Tax Authority’s (NAV) newly issued guidance sets out its interpretation regarding storage units and garages associated with new residential properties. Since most modern apartments typically include either shared or exclusive-use storage spaces and parking facilities, it is especially important for taxpayers to clearly understand the VAT treatment of these areas, as well as whether – and to what extent – they must be included in the 150 sqm floor area threshold.

VAT Treatment of Storage Units

NAV considers storage units to be auxiliary spaces serving residential purposes, used for storing everyday items (such as bicycles, strollers, and similar equipment). Accordingly, the reduced VAT rate may also apply to them, but only if two cumulative conditions are met.

First, the storage unit must be functionally linked to the residential property, meaning it must genuinely serve residential use. Second, the sale must take place as part of a single transaction together with the apartment or house. When assessing whether a transaction is unified, NAV places primary emphasis on the buyer’s intention: if the buyer’s clear aim is to acquire both the apartment and the storage unit together, the transaction may qualify as a single supply—even if, for practical reasons, separate contracts are used, or the transactions occur at different times.

Although the tax authority does not define a strict time limit for assessing the unity of transactions, it emphasizes that the 2-year rule under the VAT Act (counted from the date of occupancy permit) must always be applied to the main residential unit. In practice, taxpayers must carefully document the unity of the buyer’s intent, primarily in reservation agreements and sale contracts.

The 150 sqm Threshold and Inclusion Rules

A key principle of the 5% VAT rate is the usable floor area limit: 150 sqm for apartments in multi-unit residential buildings, and 300 sqm for single-family homes. If this threshold is exceeded, the property is outside the preferential regime, and the entire purchase price is subject to the standard 27% VAT rate. Therefore, it is crucial to correctly determine whether – and to what extent – the area of storage units must be included in the usable floor area. Based on Government Decree 280/2024 (IX. 30) and Act C of 2023 on Hungarian Architecture, a storage unit must be included if it has a ceiling height of at least 190 cm and qualifies either as a fully enclosed space or a covered area partially or fully enclosed by building structures.

Special attention is required for storage units in common ownership within condominiums. In the case of shared use, the relevant area must be calculated proportionally to the ownership share. However, if a storage unit in common ownership is subject to exclusive use rights, the entire area assigned to that right must be added to the usable floor area of the apartment. In practice, this can be particularly risky for larger apartments with exclusive-use storage units, where the total area may easily exceed the 150 sqm threshold – often due to elements considered merely “ancillary” by both buyers and developers.

Garages and Parking Spaces

NAV’s guidance draws a sharp distinction between enclosed garages and parking areas that do not qualify as separate premises, and this distinction directly determines the applicable VAT rate.

If a vehicle storage space is a fully enclosed structure (surrounded by building elements on all sides and having a proper floor surface), it is not considered a residential property or part thereof. The sale of such a garage – whether as a separate unit or within an underground garage – is always subject to the standard 27% VAT rate. In return, however, its area is not included in the 150/300 sqm threshold, meaning it does not jeopardize the preferential VAT treatment of the associated residential unit.

In such cases, the tax base must be split even if the garage is sold together with the apartment as part of a single transaction: the residential unit is taxed at 5%, while the garage is taxed at 27%.

At the same time, the guidance introduces a previously unknown approach by distinguishing garages from parking areas that do not qualify as premises but are partially enclosed spaces designed for vehicle storage (e.g., covered parking spaces within the property). These are considered part of the residential unit, meaning that they are subject to either 5% or 27% VAT depending on the VAT rate applicable to the associated apartment.

Practical Implications

While NAV’s new position clarifies several previously disputed issues, it does not eliminate the decision-making responsibility of developers and sellers – it merely defines its framework. The key takeaway for practice is that eligibility for the 5% VAT rate does not depend solely on the technical characteristics of storage or parking solutions, but on the combined assessment of three factors: whether the sale is carried out jointly with the residential property, the precise technical classification of the units involved, and the accurate calculation of usable floor area.

For projects where the usable floor area of apartments approaches the 150 sqm threshold, it is advisable to assess these factors on a transaction-by-transaction basis. A misclassified shared storage unit, an overlooked exclusive-use right, or an incorrectly taxed covered parking space may result – given the 22-percentage-point VAT difference – in additional costs amounting to millions of forints even for an average newly-built property, and may significantly reduce overall project profitability.

To ensure proper VAT treatment, it is recommended to conduct a prior review of the sales structure from both tax and construction law perspectives, with particular regard to the condominium founding document, technical and architectural documentation, and the consistent documentation of the buyer’s contractual intent. According to NAV’s interpretation, these factors jointly determine whether a transaction falls under the preferential or standard VAT rate – and consequently whether the expected return on investment can be maintained.

Disclaimer: this article is a translation of our original article written in Hungarian, which you can find here