Administrative Taxation Changes applicable to Private Investors

UniCredit Bank Hungary Zrt.
Recently passed legislation brings taxation related administrative changes in respect of private investors to the certificate issued by investment services providers for capital gains tax purposes, to the documentation requirements for the identification of tax residency, to the applicability of financial transactions taxes and to the taxation of income resulting from investment units issued by alternative investment funds
Mon, 25/07/2016

The Hungarian Parliament passed a law that amends several regulations related to the administration of taxation matters in the country in respect of private investors. We would like to provide in what follows a summary of the most important elements.


Capital gains on controlled capital market transactions

Capital market transactions are all transactions in securities, commodities or currency concluded in Hungary with an investment services provider, which are overseen by the Central Bank of Hungary as supervisor. According to the current practice, the investment services provider does not deduct any tax at source but provides data to the Hungarian Tax Authority on the income realised as a result of such transactions (including the name and tax ID of the private investor) by 15 February of the following calendar year. In addition, the Hungarian investment services provider issues a certificate on the controlled capital market transaction to the private investor for the purposes of filing the income tax return by the private investor according to the taxation rules applicable in its country of residence.

From 1 August 2016 the content of the certificate issued by the investment services provider will be extended to include the following:

  • the net financial result (profit, loss) from the transaction settled in the given tax year
  • the income from the transaction, in case of positions closed with non-financial settlements
  • the transaction expenses calculated either on the basis of the general terms and conditions of the investment services provider or on the bases of the agreement between the private investor and the investment services provider that regulates the order of settlement (matching) of transactions, including in particular the rules of calculating the expenditures spent on the acquisition of the financial instruments
  • the amount of such additional costs occurred in the given tax year that are not taken into account in the financial result of the transactions


EU Savings Directive

At present, the interest paid to private investors covered by the European Union Savings Directive (Council Directive 2003/48/EC on taxation of savings income in the form of interest payments) ("EUSD"), i.e. to private investors resident in another EU member state and in another state that has adopted EUSD, is not subject to withholding tax in Hungary. According to the current practice, the Hungarian payer does not deduct any taxes from the interest income, but only provides data to the Hungarian Tax Authority on the interest income in accordance with Article 8 of EUSD.

As of 1 September 2016 the data transfer to the Hungarian Tax Authority provided for by EUSD as well as the above provision of not deducting tax in case of private investors resident in the EU will be repealed. As a consequence, the withholding tax will have to be deducted from interest income paid to the private investors resident in the EU according to the existing (if any) Double Tax Treaty, similar to private investors resident outside the EU.

Reporting Hungarian financial institutions under Council Directive 2014/107/EU, in relation to the mandatory automatic exchange of information in the field of taxation, will take into consideration the tax residency identified when performing the Know Your Client screening according to the Common Reporting Standards.


Financial Transactions Tax

As of 1 January 2017 loan repayments in cash made to financial institutions providing credit and financial loans, which do not qualify as payment services providers, will be subject to financial transactions tax.


Income from Alternative Investment Funds

As of 1 January 2017 income from investment units of alternative investment funds will be treated as dividend (while income from investment units of other types of investment funds will continue to be treated as interest) and thus the rate of the applicable withholding tax in such cases will be 15%, payable only by private investors. The rate of the additionally applicable healthcare contribution tax will be 14%, with a maximum of HUF 450,000 (approximately EUR 1,440 at current exchange rates).


Impact on investors: The administrative taxation regime applicable to private investors in Hungary has been amended.