Hungary has ratified a new Agreement with the Government of the Sultanate of Oman for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and to further develop and facilitate their relationship. The new Double Tax Treaty (DTT) has been announced by the Hungarian Parliament but has not yet entered into force.
The Double Tax Treaty for the avoidance of double taxation with respect to taxes on income concluded between Hungary and the Government of the Sultanate of Oman was signed on 2 November 2016 and the related Act CLXXVII of 2016 was officially published on 20 December 2016.
The Contracting States shall notify each other in writing through diplomatic channels that their domestic requirements for the entry into force of the Agreement have been complied with.
The Agreement shall enter into force on the 30th day following the receipt of the latter of the notifications referred to above and its provisions shall have effect in both Contracting States:
- with respect to taxes withheld at source, for the amounts paid or credited on or after 1 January of the calendar year next following that in which the Agreement enters into force;
- with respect to other taxes on income, for taxes chargeable for any tax year beginning on or after 1 January of the calendar year next following that in which the Agreement enters into force.
The provisions of the new DTT shall apply to taxes on income imposed on behalf of a Contracting State, irrespective of the manner in which they are levied.
The existing taxes to which the DTT shall apply are in particular:
- in Hungary:
- personal income tax;
- corporate tax;
- in the Sultanate of Oman:
- the income tax.
The DTT shall apply also to any identical or substantially similar taxes that are imposed after the date of signature of the Agreement in addition to, or in place of, the existing taxes.
Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed:
- 10 per cent of the gross amount of the dividends if the beneficial owner is an individual,
- 0 per cent of the gross amount of the dividends in all other cases.
The term “dividends” means income from 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 State of which the company making the distribution is a resident.
Interest arising in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in that other State.
The term “interest” means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying 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.
Gains derived by a resident of a Contracting State from the alienation of
- immovable property situated in the other Contracting State,
- shares or comparable interests 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, other than these, from the alienation of 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 or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such fixed base, may be taxed in that other State.
Gains from the alienation of
- ships or aircraft operated in international traffic or movable property pertaining to the operation of such ships or aircraft shall be taxable only in that Contracting State;
- any property, other than those 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.