Tax rules on U.S. investments to be amended

On October 18, a draft bill was made public for public consultation, which will, among other things, amend the Act on Personal Income Tax. Some of the changes are planned to mitigate the negative effects of the termination of the American-Hungarian Double Taxation Agreement in 2024.

U.S. stock market investments

Before the draft bill, it was not entirely clear how the profits of transactions concluded by Hungarian private investors on U.S. markets would be taxed after the termination of the agreement. The proposal gives a clear answer to this by extending the definition of controlled capital market transactions to include transactions concluded on the markets of OECD countries, including the United States, even in the absence of a double tax treaty. This means that Hungarian private investors would remain entitled to credit losses on U.S. transactions against profits.

U.S. interests

The draft bill proposes to amend the tax rules in such a way that, even in the absence of a double tax treaty, the interest paid by a person resident in an OECD member state would be treated as interest income of the private individual – and not their other income. As a result of this change, not only U.S. shares, but also such bonds and government securities could still be traded in Hungarian long-term investment accounts from 2024.

U.S. dividends

However, the termination of the agreement may still mean that U.S.-sourced dividend income is subject to a 30% U.S. withholding tax, of which a maximum of 10% can be credited against the Hungarian tax. This means that there will still be a minimum 5% Hungarian personal income tax payment obligation.

Athletes and entertainers

Until 2024, the double tax treaty did not allow the Hungarian taxation of U.S. athletes and entertainers if they stayed in Hungary for a short period. However, the termination of the agreement will change this. For example, from 2024, if a musician from the United States performs in Hungary, the remuneration received for the concert will be subject to 15% Hungarian personal income tax.

In this regard, the amendment is expected to state that the place of gainful activity will remain in Hungary even if the performer's or athlete's income is generated by a person other than the individual concerned. The purpose of the amendment may be to treat the income as Hungarian-sourced and taxable even if, for example, the Hungarian concert promoter pays the remuneration for the performance to a business, or "star company,” rather than directly to the performer. It requires further analysis whether such payment to a star company would be subject to the obligation to withhold Hungarian personal income tax.

If you have any questions regarding the above, please contact our colleagues below.

Gergely Juhász 
Partner
Email: gergely.juhasz@pwc.com

Péter Honyek 
Director
Email: peter.honyek@pwc.com