More than 60 countries has signed double tax treaties with Hungary so far: Albania, Armenia, Australia, Austria, Azerbaijan, Belarus, Belgium, Bosnia and Herzegovina, Brazil, Bulgaria, Canada, China, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Germany, Great Britain, Greece, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Kazakhstan, Korea, Kuwait, Latvia, Lithuania, Luxembourg, Macedonia, Malaysia, Malta, Moldova, Mongolia, Montenegro, Morocco, Netherlands, Norway, Pakistan, Philippines, Poland, Portugal, Romania, Russia, San Marino, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Taiwan, Thailand, Tunisia, Turkey, Ukraine, Uruguay, United States of America, Uzbekistan, Vietnam, United Kingdom, Qatar, Georgia, Denmark and Bahrain. Many other drafts are still in pending so the treaty network will be extended in a few years.
Due to the double tax treaties provisions, the profits are exempt from taxes in Hungary and are taxed only in the country of origin or may be taxed in Hungary but credited in the country of origin if enough proofs are delivered regarding the fact that the profits shouldn’t have been taxed.
Other provisions include lower or exempt withholding taxes on dividends, interests and royalties. The usual withholding tax paid on dividends, interests and royalties is 16% but is reduced by the treaties’ incentives in many cases.
Most treaties signed by Hungary also regulate the exchange of tax information between two countries. These are special regulations in order to avoid the tax frauds. Usually the exchanged information is secret and cannot be disclosed to a third party. In certain cases, usually when the treaty is not elaborated after the OECD model, the provision for tax exchange information is missing from the treaty so special protocols are signed between the countries in order to avoid these irregularities.
When a tax payer claims a refund for the taxes or a smaller withholding tax on dividends, interests or royalties, an evidence from the foreign tax authority must be delivered to the Hungarian tax authorities, such as a tax certificate which clearly stipulates that the profits were already charged or will be charged in that country.
Double tax treaties are special instruments used by Hungary in order to attract new investment and assure the entrepreneurs that an investment made here is secured.