Hungary has announced the ratification of the following tax related agreement with Kosovo:
The DTT with Kosovo was signed on 3 October 2013 and the related Act CLXXXVII of 2013 was officially published on 21 November 2013.
Upon the entry into force of this DTT the earlier treaty between the Hungarian People’s Republic and the Socialist’s Federal Republic of Yugoslavia for the avoidance of double taxation with respect to taxes on income and capital signed in Budapest on 17th October 1985 shall terminate and cease to have effect as regards Hungary and Kosovo.
Among others the new DTT determines the tax on dividends as follows:
(a) 0 per cent of the dividend gross amount if the beneficial owner is a company (other than a partnership that is not liable to tax), which holds directly at least 25 per cent of the capital of the company paying the dividends;
(b) 5 per cent of the dividend gross amount in all other cases.
Furthermore, the new DTT stipulates 0% withholding tax on interest and capital gains (i.e. these amounts are taxable only in the country where the beneficiary of the interest or the recipient of the capital gain is resident). However, the capital gain from the alienation of the shares on real estate companies is taxable in the country where the real estate property is situated.
Both of the above agreements are not yet in force. They will become effective once both contracting countries have completed the ratification process.
Impact on investors: Hungary has progressed further with its plan to revise some of its existing DTT and information exchange agreements and to promulgate new ones. The related Act (Act CLXXXVII of 2013) was officially published, however, it has not entered into force yet.