The Treaty on the avoidance of double taxation with respect to taxes on income and on capital concluded between Hungary and The Principality of Liechtenstein was signed on 29 June 2015 and the related Act CL of 2015 was officially published on 14 October 2015. The Contracting States shall notify each other in writing, through diplomatic channels, of the completion of the procedures required by their domestic laws for putting into force of the Treaty, which shall come into effect on the 30th day following the receipt of the latter of the two notifications referred to above, and its provisions shall have effect in both Contracting States:
a) in respect of taxes withheld at source, on income paid or credited on or after 1 January of the calendar year following the year in which the Treaty 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 1 January of the calendar year following the year in which the Treaty enters into force;
c) in respect of Exchange of Information to requests made on or after 1 January of the calendar year following the year in which the Treaty enters into force and only in
respect of taxable periods beginning on or after 1 January of the calendar year following the year in which the Treaty 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 local authorities.
The existing taxes to which the DTT shall apply are :
- in Hungary:
(i) the personal income tax;
(ii) the corporate tax;
(iii) the land parcel tax; and
(iv) the building tax;
- in the Principality of Liechtenstein:
(i) the personal income tax (Erwerbssteuer);
(ii) the corporate income tax (Ertragssteuer);
(iii) the real estate capital gains tax (Grundstücksgewinnsteuer);
(iv) the wealth tax (Vermögenssteuer); and
(v) the coupon tax (Couponsteuer).
The DTT shall apply also to any identical or substantially similar taxes that are imposed after the date of signature of the Treaty 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:
(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 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 Treaty it is understood that:
(a) an investment fund and a pension fund of a Contracting State are considered to be residents of that State;
(b) the term “investment fund” means the following:
(i) in Liechtenstein, any investment fund according to the Law on UCITS, the
Law on Investment Funds and the Law on AIFM;
(ii) in Hungary, any investment fund according to the Law on UCITS and on AIFM;
(c) the term “pension fund” means the following:
(i) in Liechtenstein, any pension fund or scheme covered by the Law on Old Age
and Survivors’ Insurance, the Law on Disability Insurance, the Law on
Occupational Pension Funds, and the Pension Fund Act;
(ii) in Hungary, any pension fund or scheme covered by the Act on Private
Pensions and Private Pension Funds, the Act on Voluntary Mutual Insurance
Funds, and the Act on Occupational Pension and the Related Institutions;
(d) the competent authorities may agree that collective investment vehicles and pension funds which are established under legislation introduced after the date of signature of the Treaty are to be considered as residents;
(e) a Liechtenstein foundation, establishment, and trust enterprise taxable in Liechtenstein
by virtue of paragraph 1 of Article 44 of the Liechtenstein Tax Act is considered
as company resident in Liechtenstein; and a Hungarian trusteeship regulated by Chapter
43 of the Civil Code and taxable by virtue of Article 2 of the Corporate Tax Act
is considered as company resident in Hungary;
(f) an entity or organisation that is established and is operated exclusively for charitable,religious, humanitarian, scientific, cultural, or similar purposes (or for more than one of those purposes) and that is resident of that State according to its laws is considered as resident of that State, notwithstanding that all or part of its income or gains may be exempt from tax under the domestic law of that State;
(g) notwithstanding subparagraphs (a) to (f) above, persons (including private assets structures) that are subject in Liechtenstein only to the minimum corporate income tax shall not be considered residents of Liechtenstein.
Impact on investors: Hungary has progressed further with extending the circle of existing DTTs, thereby increasing the possibility of avoiding double taxation.