The Double Tax Treaty was signed on 30 November 2015 and the related Act IV of 2016 was officially published on 10 March 2016.
The contracting states shall notify each other, through the respective diplomatic channels, when the domestic requirements for the enforcement of the agreement have been met.
The agreement shall enter into force on the 15th day following the receipt of the notifications referred to above and its provisions shall have effect in both contracting states:
- with respect to taxes withheld at source, on income derived on or after the 11th of Dey Solar Hijra corresponding to 1st of January of the calendar year following that in which the agreement enters into force;
- with respect to other taxes on income and on capital, for taxes chargeable on any taxable year beginning on or after the 11th of Dey Solar Hijra corresponding to 1st of January of the calendar year following that in which the agreement enters into force.
The provisions of the new DTT shall apply to taxes on income and on capital imposed by a contracting state or by its local authorities. The DTT will, in particular, apply to these existing taxes:
- in Hungary:
(i) personal income tax;
(ii) corporate tax;
(iii) land parcel tax; and
(iv) building tax;
- in the Islamic Republic of Iran:
(i) real estate income tax;
(ii) tax on income from agriculture;
(iii) tax on salary income;
(iv) tax on unincorporated individual business income;
(v) tax on the profits of legal persons;
(vi) tax on incidental income; and
(vii) capital tax.
The DTT shall apply also to any identical or substantially similar taxes that are imposed after the date of signing of thegreement in addition to, or in place of, the existing taxes.
Dividends
Dividends paid by a company which is a resident of a contracting state, to a resident of the other contracting state shall only be taxable in the resident’s state.
The term “dividends” means income from shares, “jouissance” shares or “jouissance” rights, mining shares, founders’ shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the laws of the company’s resident state.
Interest
Interest arising in a contracting state and paid to a resident of the other contracting state may be taxed in the resident’s state. However, such interest may also be taxed in the contracting state in which the tax arises but it shall not exceed 5 per cent of the gross amount of the interest.
The term “interest” means income from debt-claims of any kind, whether or not it is secured by mortgage or does not carry a right to participate in the debtor’s profits, and, in particular, income from government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures. Penalty charges for late payment shall not be regarded as interest.
Interest arising in a contracting state and paid to a resident of the other contracting state, who is the beneficiary, will be taxable only in the resident’s state if the following interest is to be paid:
a) in connection with the sale on credit of any merchandise or equipment;
b) on loan or credit of any type granted by a bank;
c) to the government of the other contracting state, including all political subdivision or local authority, which would therefore include, the central bank or any financial institution owned or controlled by that government;
d) to a resident of the other State with loan or credit that is guaranteed by the government of the other state, including any political subdivision or local authority, which would therefore include, the central bank or any financial institution owned or controlled by that government.
Capital Gains
Gains derived by a resident of a contracting state from the alienation of
- immovable property situated in the other contracting state
- movable property forming part of the business property of a permanent establishment which an enterprise of a contracting state has in the other contracting state, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise),
may be taxed in that other State.
Gains derived by
- an enterprise of a contracting state from the alienation of ships, aircraft or road and railway vehicles operated in international traffic or movable property pertaining to the operation of such ships, aircraft or road and railway vehicles shall be taxable only in that state.
- a resident of a contracting state from the alienation of shares or other comparable corporate rights deriving more than 50 per cent of their value directly or indirectly from immovable property situated in the other contracting state may be taxed in that other state.
Gains from the alienation of any property, other than that referred to above shall be taxable only in the contracting state of which the alienator is a resident.
Impact on investors: Hungary has progressed further with extending the circle of existing DTTs, thereby increasing the possibility of avoiding double taxation.