New German-Hungarian treaty on the avoidance of double taxation and the prevention of tax avoidance
The treaty signed on 28 February 2011 will replace the earlier document, concluded in 1977, following its ratification by the two countries party to the agreement.
The changes cover, among other things, the withholding tax on dividend payments between companies. Under the new rules, it will be possible to charge a 5% withholding tax on dividend realised by a beneficial owner with a stake of at least 10%, in contrast to the previous 25% minimum ownership share. (We note, however, that the Hungarian corporate tax laws do not stipulate a withholding tax on dividend paid by a Hungarian company to its parent company.)
The rules pertaining to interest and royalties remain unchanged; in other words this income may be taxed by the country where the beneficial owner is resident for tax purposes (the 1977 treaty did not contain the term "beneficial owner"). It is important to highlight that the gain realised on the sale of companies with a high proportion of real estate assets will also become taxable in the state where the real estate is located. Besides this the new agreement ensures that pensions paid out under the compulsory social insurance system will in future only be taxable under the law of the state performing the payments.
In the case of income derived from an employment relationship, fulfilment of the 183-day rule will have to be examined within any 12-month period beginning or ending in the given tax year. In addition to the above, the overhauled treaty contains new rules regarding the application of offsetting and exemption methods, and also considerably broadens the scope of bilateral information exchange.
For further information contact tax director Mr Tamas Gyanyi at HLB member firm HLB Klient Kft.
Mr. Tamas Gyanyi
ABOUT HLB KLIENT KFT
The first company in the HLB Klient group was established in 1998, with the aim of offering tax consulting, auditing, legal counselling and other financial administration services in compliance with both international and Hungarian standards. At present, the group consists of four companies and provides complex advisory and compliance services to its clients. The services we offer range from auditing and tax consulting, through bookkeeping, payroll services, legal services related to company establishment and labour-law issues, and other financial management services. Since January 2003 HLB Klient Kft has been the Hungarian representative of HLB International enabling HLB Klient to provide clients with professional services at an international level.