The DTT for the avoidance of double taxation with respect to taxes on income and on capital concluded between Hungary and the Government of Turkmenistan was signed on 1 June 2016 and the related Act XCVI of 2016 was officially published on 4 October 2016.
The contracting parties shall notify each other through diplomatic channels that their domestic requirements for the entry into force of the convention have been complied with.
The convention 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, on income derived on or after the 1 January of the calendar year following that in which the Convention enters into force;
- with respect to other taxes on income and on capital, for taxes chargeable for any tax year beginning on or after the 1 January of the calendar year following that in which the convention enters into force.
The provisions of the new DTT shall apply to taxes on income and on capital imposed on behalf of a contracting state or of its administrative subdivisions or local authorities. The existing taxes to which the DTT shall apply are in particular:
- in Hungary:
(i) personal income tax;
(ii) corporate tax;
(iii) land parcel tax; and
(iv) building tax; - in Turkmenistan:
(i) the tax on profits (income) of legal entities;
(ii) the tax on income of individuals;
(iii) the tax on property.
The DTT shall apply also to any identical or substantially similar taxes that are imposed after the date of signature of the convention 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 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:
(a) 5 percent of the gross amount of the dividends if the beneficial owner is a company (other than a partnership that is not liable to tax), which holds directly at least 25 percent of the capital of the company paying the dividends;
(b) 15 percent 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
Interest arising in a contracting state and paid to a resident of the other contracting state may be taxed in that other state. However, such interest may also be taxed in the contracting state in which it arises and according to the laws of that state, but if the beneficial owner of the interest is a resident of the other contracting state, the tax so charged shall not exceed 10 per cent of the gross amount of the interest. Interest arising in a contracting state, derived and beneficially owned by the other contracting state, including its local authorities, the central bank or any financial institution wholly owned by that contracting state, shall be exempt from tax in the first-mentioned 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.
Capital Gains
Gains derived by a resident of a contracting state from the alienation of
- immovable property and situated in the other contracting state,
- shares or comparable interests deriving more than 50 percent 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, 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 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 the contracting state in which the place of effective management of the enterprise is situated,
- 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.