The Double Tax Treaty for the avoidance of double taxation with respect to taxes on income and on capital concluded between Hungary and the Grand Duchy of Luxembourg was signed on March 10, 2015 and the related Act XCI of 2015 was officially published on July 2, 2015.
Each of the Contracting States shall notify each other in writing, through diplomatic channels of the completion of the procedures required by its law for the bringing into force of the Convention that shall enter into force on the 30th day following the date of receipt of the latter of the notifications referred to above and its provisions shall have effect in both Contracting States:
(a) in respect of taxes withheld at source, to income derived on or after January 1 of the calendar year next following the year in which the Convention enters into force;
(b) in respect of other taxes on income and taxes on capital, to taxes chargeable for any tax year beginning on or after January 1 of the calendar year next following the year in which the Convention enters into force.
Upon the entry into force of the new DTT, the earlier Convention between the Republic of Hungary and the Grand Duchy of Luxembourg signed at Budapest on January 15, 1990, shall be terminated. ´
The provisions of the new DTT shall apply to taxes on income and on capital imposed on behalf of a Contracting State. The existing taxes to which the DTT shall apply are in particular:
- in Hungary:
(i) the personal income tax;
(ii) the corporate tax;
(iii) the land parcel tax; and
(iv) the building tax;
- in Luxembourg:
(i) the income tax on individuals;
(ii) the corporation tax;
(iii) the capital tax; and
(iv) the communal trade tax.
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) 0 per cent 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 10 per cent of the capital of the company paying the dividends;
(b) 10 per cent of the gross amount of the dividends in all other cases.
Interest
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.
In the new Convention it is understood that the term “collective investment vehicle” means:
(a) in Hungary: any investment fund established on the basis of the Act on collective investment schemes and their management;
(b) in Luxembourg:
(i) an investment company with variable capital;
(ii) an investment company with fixed capital;
(iii) an investment company in risk capital;
(iv) a collective investment fund,
as well as any other collective investment vehicle established in either Contracting State which the competent authorities of the Contracting States agree to regard as a collective investment vehicle.
Impact on investors: Hungary has progressed further with extending the circle of existing DTTs, thereby increasing the possibility of avoiding double taxation.