The Double Tax Treaty for the avoidance of double taxation with respect to taxes on income and on capital concluded between Hungary and Switzerland was signed on 12 September 2013 and the related Act CLXIII of 2013 was officially published on 21 October 2013 and entered into force on 9 November 2014.
The provisions of the DTT shall apply to taxes on income and on capital imposed on behalf of a Contracting State.
The provisions of the DTT shall have effect:
a) in respect of taxes withheld at source on amounts paid or credited on or after 1 January 2015;
b) in respect of other taxes for taxation years beginning on or after 1 January 2015;
c) in respect to exchange of information, to information that relates to taxation years or business years beginning on or after 1 January 2015.
The DTT shall apply also to any identical or substantially similar taxes which are imposed after the date of signature of the DTT in addition to, or in place of, the existing taxes.
Dividends
Pursuant to the DTT dividends paid by a company resident in Hungary to a beneficial owner resident in Switzerland may be taxed in Switzerland. However, such dividends may also be taxed in Hungary according to the laws of Hungary, but the tax so charged shall not exceed 15% of the gross amount of the dividends.
Notwithstanding to the above, dividends paid by a company resident in Hungary shall exempt from tax, if the beneficial owner of the dividends is
a) a company (other than a partnership that is not liable to tax) resident in Switzerland and which holds directly at least 10% of the capital in the company paying the dividends; or
b) a pension scheme; or
c) the central bank of Switzerland.
The above provisions are also applicable to dividends paid by a company resident in Switzerland, to a beneficial owner resident in Hungary.
Interest
Interest arising in Hungary and beneficially owned by a resident of Switzerland shall be taxable only in Switzerland, while interest arising in Switzerland and beneficially owned by a resident of Hungary shall be taxable only in Hungary.
Impact on investors: Hungary has progressed further with extending the circle of existing DTTs, thereby increasing the possibility of avoiding double taxation.