In the summer 2022, the United States unilaterally terminated the US-Hungary double tax treaty with Hungary.
According to the Hungarian Tax Authority, the treaty is already to be considered terminated, however, its provisions can still be applied until the end of this year. Thus, income earned by the end of the year is still taxed as if nothing had happened. From 1 January 2024 however, income from the US can be taxed in both countries, and income from the US will be treated as "nontreaty country" income. It is important to highlight that so-called "source income" (in Hungarian "forrásadós jövedelmek") will be subject to double taxation.
This means that, as it stands, one will be taxed twice on any capital gains, interest or dividend income earned by holding US stocks and bonds. In the worst-case scenario for a US stock market transaction, 35% of the gain would be taxed. There is a lot of uncertainty at the moment, while domestic brokerage firms and fund managers are holding out for the time being and hope that the two countries will eventually bring a new agreement to a head.
By Rozsa Rusvai-Darazs, Attorney at law, KCG Partners Law Firm
