The United States and Hungary terminate double taxation treaty, relations worsen
The United States has terminated the double taxation treaty between it and Hungary. Its provisions are still in force for this year. Next year, however, companies and individuals with US interests face big changes, mostly negative ones.
The US is terminating the agreement
Last July, the United States notified Hungary that it was terminating the double taxation treaty between the two countries, Index reports. The provisions of the expired agreement can still be applied for tax purposes until 31 December 2023. This means that there will be no change in the tax treatment of income earned until the end of this year, the National Tax and Customs Administration (Nemzeti Adó- és Vámhivatal, NAV) said on its website.
For a long time, Index writes, it was uncertain how definitive the denunciation of the agreement would be. However, based on the NAV’s information and the latest US position, the treaty is now considered to be terminated permanently, said Lajos Bagdi, partner in the tax and legal advisory business of Niveus Consulting Group. The grace period lasts until the end of 2023.
Under the treaty, if a Hungarian investor buys a US stock on a stock exchange and receives a dividend, he orthey will pay 15 percent US withholding tax on the dividend income and will not be subject to any additional Hungarian personal income tax. Thus, double taxation is avoided.
What is the consequence of the termination of the treaty?
However, if the treaty is terminated, Hungarian investors will be subject to a 30 percent withholding tax starting from 2024, and an additional 5 percent Hungarian personal income tax. This will bring the total tax burden to 35 percent.
If the agreement is terminated, interest income will be considered other income, subject to a 13 percent social contribution tax in addition to personal income tax. On top of that, transactions in US stocks and bonds will not be considered controlled capital market transactions, which will make it virtually impossible for Hungarians to invest in the US.
US investors do not have it this hard
Since Hungary does not levy withholding tax on dividends, royalties and interest income paid to foreign companies, this type of income is tax exempt, Lajos Bagdi said. He added that there is nothing to prevent Hungary from imposing withholding tax in the future, thus eliminating the unequal situation.
Source: Index.hu