United Kingdom-Hungary Double Taxation Treaty
Her Majesty’s Revenue & Customs (HMRC) in the United Kingdom has confirmed that a new income tax treaty between the U.K. and the Republic of Hungary was signed in Budapest on 7 September 20111.
The new treaty generally follows the OECD Model Double Taxation Convention. Some of the more noteworthy items, for multinational employers and their assignees, included in the new treaty are noted below:
• Article 14 dealing with employment income has been amended to apply to a period of 183 days in any 12-month period (previously 183 days in the fiscal year);
• The introduction of a remittance clause;
• A reduced withholding rate of 10 percent on dividends (with a 15-percent rate for REITS), and zero (0) withholding tax on interest and royalties;
• A zero (0) withholding tax on dividends paid to pension funds or where the beneficial owner is a company owning at least 10 percent of the capital of the company paying the dividend;
• The latest OECD Model provision on exchange of information.
The full text of the treaty can be found on the HMRC Web site at:
Article 14 – 183 days
The current employment income article states:
…remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:
(a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in the fiscal year concerned.
The new treaty when ratified will replace this condition with:
the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the fiscal year concerned.
This condition is more restrictive and should, therefore, reduce the number of treaty claims.
The introduction of a remittance clause will deny exemption from Hungarian tax when the income is assessable in the U.K. on the remittance basis and is not remitted.
The new treaty will enter into force once both countries have completed their legislative procedures. The provisions of the agreement will then take effect from the following year, as noted below.
In the U.K.:
• From following 6 April, for income and capital gains tax purposes, and from the following 1 January, in respect of taxes withheld at source;
• From following 1 April, for corporation tax purposes.
The agreement will be effective in the Republic of Hungary from the following 1 January.