Replacing an old double taxation agreement and signing new ones

Various new agreements aimed at avoiding double taxation have recently been promulgated in the Hungarian Gazette:

1.    the agreement concluded with the Swiss Confederation replacing Decree Law No. 23 of 1982, promulgated by Act CLXIII of 2013,
2.    new agreement concluded with the United Arab Emirates,
3.    new agreement concluded with the Republic of Kosovo.

The agreements concluded with the United Arab Emirates and the Republic of Kosovo cover income taxes (personal income tax in Hungary) and corporate tax. Among others, the agreements govern how to determine places of business and decide on the taxation of income generated from employment, dividends, interest as well as royalties.

Below we highlight the major changes in the agreement concluded with the Swiss Confederation compared to the previous agreement: in addition to minor adjustments, we need to pay attention to the following changes when examining the new agreement, which is not yet in force:

Place of business

One change compared to the previous agreement is that assembly or installation works on machinery or equipment in one of the contracting states related to the delivery of the same manufactured by a business organisation in another contracting state do not create a place of business, regardless of the duration of such work.

An additional change related to places of business is that if one of the states adjusts the profit of the place of business, the other state too must make a relevant adjustment to avoid double taxation, or if they disagree with such adjustment, they have to launch a mutual reconciliation procedure.

Adjustment of related companies’ profit:

Another change compared to the previous agreement is that contracting states are now obliged to act consistently when adjusting related companies’ revenues to avoid double taxation: if one of the contracting states adjusts the profit of a business in its state, and thus levies taxes on revenues which were already taxed at the related company of the business in the other state, said other state is obliged to make the required adjustment or launch a reconciliation procedure.


Dividends paid continue to be taxable in the state where the company paying the dividend is a tax resident. The previous agreement maximised the size of the withholding tax at 10% of the gross dividend, which has now increased to 15%. The maximum 10% withholding tax still applies amongst others for businesses which hold at least a 10% share in the business paying the dividend.


Pursuant to the previous agreement, interest income is currently also taxable in the source country up to 10% of the gross interest income. This stops based on the new agreement, which means interest income will be taxable only in the state where the private individual is a tax resident.

Profit from the sale of shares or similar interests

The previous agreement did not allow for taxation in the source country in the event of the sale of a business share. However, based on the new agreement, if a business sells a share held in another business where at least 50% of its value is generated directly or indirectly from real property, the profit from the transaction is also taxable in the state where said real property is located. This provision does not apply to gains from the alienation of shares registered on a stock exchange and shares in a company, the assets of which consist of more than 50% of immovable property, in which the company carries on its business.

Exchange of information

New provisions pertaining to the exchange of information have also been added to the agreement, which contain requirements concerning the content and form of the exchange of information as well as provisions on secrecy and interpretation.

The agreement taking effect is subject to the contracting countries informing one another by diplomatic channels whether they have complied with the domestic requirements for the agreement to enter into force.

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