Buying a cafe in Budapest

usafpj wrote:

Now the cafe I'm looking at is 6 million to purchase plus 250.000 per month. I know lying is rife for Hungarian businesses but the seller wants to put the purchase price on paper as 500.000.  My wife says this is normal but it makes me a bit nervous.

To be frank, a reduction in actual to reported sale price by that amount is not "normal", from my experience at least, in Hungary. You have every right to be suspicious. Quite frankly, I would use stronger words and walk away from such a "deal".

usafpj wrote:

She also states that when flats and houses are purchased they put about half the true price on the government forms.

Others may have different experiences, but I have paid to purchase four properties in Hungary with my wife. Full purchase price has always gone on the forms. And the seller has never balked**. There are crooks in Hungary (and everywhere else on the planet), but not everyone is a crook. The only "deal" we made was to declare a reasonable percentage of the house we paid was for "wine making equipment", which was true, even if I thought the amount declared for the equipment was about twice what it was actually worth. Was that a "lie" or simply a difference of opinion between the seller and I? In the end I accepted it as a difference of opinion.

** Of course, we paid well for the properties, which compensated for the seller's tax burden.

usafpj wrote:

The owner seems to lie and cheat on about everything.

I think that should concern you. It would be different in the states where you would be more familiar with how deals are made. In Hungary you do not know the traditions and "deals" or methods of making deals (I am still trying to figure it out after 18 years since my first trip to Hungary), and are basically, it sounds like, dealing with a crook in this sale (in my opinion based on what little you wrote here). You may not know some of the snakes in the grass until it is too late. Yes, be concerned.

My suggestion is to keep looking for an honest person who has a business to sell. Yes, they do exist in Hungary.

Or maybe invest your capital instead in a business in the States -- maybe as a limited partner (allows you to be absent from the daily workings of the business). You would be more in charge and in your element.

usafpj wrote:

So I guess my real question is how much lying should I accept.

Personally, I have low tolerance for lies or liars either in social or business dealing. I am not trying to change the world, and certainly not even trying to change the local social structure. But I can control who I choose to do business with. And I have found enough honest enough people and businesses who do good by me and I do good by them -- and they get my money.

usafpj wrote:

My inlaws(who also own a cafe) and this cafes accountant both state that no taxes need to be paid except for employee tax.

Depends on the business type. If a sole proprietor, then yes all "profit" can be declared as employee income (sole proprietors are basically self employed). But that is also getting the largest tax burden, which is why most businesses function as a KFT, which can pay less employee taxes. If they have a KFT, then only if the KFT has a profit do they have to pay other than employee taxes. However a KFT must show a profit at lease some years or it is disbanded. So if they have a KFT then saying only employee taxes have to be paid is.... suspicious.

usafpj wrote:

But I cannot get clear answers on if I leave the country again for work will I lose my card.  Does anybody have experience with residence cards or similar?

It will depend on your type of residency card you apply for or receive and how long you remain working abroad. But if you go abroad for a few months, I do not think there will be any problem.

usafpj wrote:

Why can't I get a loan in country if buying local property and being able to show my income?

Normally, banks will not loan to non-citizens without a job in the country because there is nothing on paper showing that you will remain in the country and complete the loan payment. Simply having a residency card is not enough a guarantee. And the property is actually not really useful to the bank since there is no guarantee they can recoup the loan costs even if they foreclose on the property, especially with the current property and banking situation in Hungary.

usafpj wrote:

Why doesn't Hungary allow my spouse to apply for a loan in her name with my income?

Because the bank has no guarantee that if you get divorced, and she then has no income, that the loan will be repaid. A common policy of banks in many countries.

Hi David

Don't know about the card but yes buying a property in Hungary is tricky.  Get a good lawyer who speaks English and draw up the contract of sale in both languages. I can highly recommend Pakay & Pakay. They will manage all the hazards for you and everything will be done according to the law.

Julius

Thanks for all the info klsallee.  The missus is still quite set on this place and from her experiences sees no big issues.  I am also interested since everything fits for me(location, size, et cetra) but I want to make sure everything is legit before going for it, so my next step is to talk to a lawyer and accountant and pass them the Kft number so they can check everything. Seems you have been in country quite a while and performed a multitude of transactions so would you please recommend a lawyer and accountant. The accountant we have now is 20.000 a month and the one the current cafe owner uses is 10.000 a month which sounds way too low. Oh, the reason I'm asking is because our current accountant doesn't speak English and the misses is tired of translating and having me tell her she must have misunderstood.

Unfortunately, our attorneys and accountant do not speak English.

You can sometimes negotiate with many accountants how much they charge depending on how many billings you have them process, and if they charge an extra fee for the quarterly and yearly summaries. For daily billings (such as in a cafe), and using double book keeping 20K is normal but that should include the summaries (i.e. no extra fees). A 10K a month accountant may charge a fee to process the summaries.

One final point I may mention: If for any reason you want to back out of the sale, and the "sale price" was put down as 500K, the seller may be quite happy to take back the property, and give you back your 500K. You loose the rest (5.5 Million). Going to court will not help as there is nothing on paper showing you paid more than 500K. It has happened.

I am American married to a HU of dual citizenship.
I have a 5 year resident permit which clearly came with instructions to tell immigration if I leave Hungary for longer then 90 days.
I have no good advice on opening up a business in Hungary other then from every business deal we ever did in HU, we got scre*** big time. We had an import/export in 1989 with Hu partners, never again!!
Not sure why theywant to lower the cost on paper other then for their own gain tax wise or some other thing.
When we bought our flat we made sure we had it down exactly the cost we paid, not going to mess around in a different country, why start out doing things the wrong way?
good luck.
it is going to be hard to be out of the country and run your own business at the same time.

You give the best advice, let's hope he listens to you and not his wife. she may be caught up in the excitment and not thinking clearly enough.
In any case, they should check out if any business is actually a money maker or a headache before signing anything.

usafpj wrote:

.... I know lying is rife for Hungarian businesses but the seller wants to put the purchase price on paper as 500.000.  My wife says this is normal but it makes me a bit nervous. She also states that when flats and houses are purchased they put about half the true price on the government forms...

It's totally naive to believe the tax authorities do not know the market price of real estate.  There is a "value" associated with the land taxes levied but this is playing with fire to think they will be fooled by such a large differential (don't forget they have access to all historical land transactions). You can only hide some of the value in the fixtures and fittings but to be honest, on 6 MFt, the uncertainty over being hit with tax and penalties will bring will cause you more stress than the money you will save by dodging the NAV (equivalent of the IRS).  The seller might be trying to avoid capital gains tax.  In which case, they should sell at a paper loss (same as they paid) and then you can assign private value on the fixtures (e.g. tables, chairs, bar furnishings, kitchen equipment) separately from the building.

This is another good answer.

I also wonder what experience you might have in the food business.
Over the past 10 or so years here in Budapest we have seen so many small eateries open  and close down, bakeries too. It is hard to make money off of food unless you have something special to offer.
Who will be running the day to day operations if you work out of Hungary? So many small ways to ruin a business.
We in the past opened several businesses which we know about. 3 machine shops and a beauty salon.
The machine shops started out well but getting the buyers to pay sooner then 120 days or longer killed us.
Many of our work went through so many hands that in the end we didn't think it was worth all the trouble.
Beauty salon was not in the best location, anything better I couldn't of afforded to rent out.
Small business loans are hard to get in the US and here in Hungary I doubt they even have them.

For 6 million forints you could open a small business in the US where at least you have a fighting chance to control things, if you don't understand Hungarian you will be at the mercy of vendors who supply you,workers who cheat etc.
I hate to sound so negative but at our age with the experiences we have already gone through, it just doesn't sound like you have done enough homework on collecting the proper info to make a go at it.

I tend to agree with Marilyn.  There's a lot of pitfalls and without the language skills, you'd be paying 30% more at least.. Might be better to buy an apartment and rent it out for a steady income stream although there would be little capital appreciation.

Yes, I think renting out a flat or two would be a more steady income in the long run.
Make sure you have a good contract written up before letting anyone move in however.
Your wife could help you read up in Hungarian about the rental contracts and laws in Hungary.
We looked awhile ago but those rules are always changing, hard to keep on top of changes.
I do know we read in the past that in some cases it is almost impossible to evict some people who have children, are old or handicapped. We have a family in our building that has not paid their common costs for ages, owe more then a million forints back payments and they are still living in the house.
They have children, the elderly father n law lived with and was dying of cancer and the other son is an alcoholic with no job. Everyone in the house dislikes them because they make a ton of noise in the night, still here though...

You can get a loan in HU with foreign income and large downpayment. In some cases you will need a guarantor or co-signer who is HU citizen, but that is really up to the Bank.
Even with permanent residency card if you leave country of residency for more than 3 months your continuous residency will be interrupted. In most EU states it would mean you do not meet cont. residency criteria and cannot apply for citizenship. This is paradox of EU if you are not EU citizen and you go where the work is available you will never be a citizen of EU because your continuous residency requirement of 4-5 years  will never be fulfilled. However if you sit like a leach on Welfare and Unemployment and never move for a job , voila in 4-5 years you can apply for citizenship...

Yes, immigration rules are insane, the 3 month thing makes one feel like they are in house arrest.
I have NO interest at all in being a HU citizen. My husband and son are dual  citizens and honestly so far no perks for either of them being a citizen of HU. Not really anything to shout about anyways.
I do know that to for fill the regulations and rules for a resident permit one can not even try to get any welfare or help in HU. I signed a paper stating I would never ask for help from the HU gov. for money, food or anything.
It is more like I am paying to have the "honor" of being able to live in HU with my husband.
Don't mind me though, if I ever was in need I would hit the dust ASAP, go home to the US.
I know several cases of HU citizens living in the US who somehow never held down a job in 40 years but lived off the citizens of the US with welfare. 2 were finally deported back to HU.
We ran into one of them on the st. he was off for drug rehab and was living off the HU gov.
He was born in HU so he was in his element.
One HU citizen has lived in the US for over 40 years, we have never known him to ever work but to sit outside his shack in Hawaii smoking pot and collecting welfare and selling drugs.(He is a squater on land that is unclaimed)
The US is much more tolerant with helping people who are not willing to do a thing for themselves.

Putting a lower price in the contracts reduces tax exposure. The main risk belongs to the seller as you are only obliged to pay as much as is in the contract, although not stating the right price is a kind of crime as well.
If you leave the country by car but stay in the Schengen zone noone will know you left.
When buying a cafe I believe you will have to have a company and that has different costs, for example it is mandatory that you   hire an accountant and pay him monthly.A good accountant would reduce tax costs. First and foremost you will need a lawyer both for the purchase of the cafe and for buying apartments, you cannot do the latter without a lawyer. drveghistvan.hu

Another concern is whether or not you understand how regulated these places are.  You will be out of town.  You can be fined for not be opened hours as stated, having someone behind the counter who is not on the books (for example,    my friends are terrified to let me bring my plate back behind the counter to help them out), prices not exactly labelled and so on.  It depends of course on who is the official and where you are, but I promise this is a much bigger deal than you imagine. 

How long have you been married to the wife?  If you wait, an opportunity will arise.  Much less suspicious than this one.