On Thursday, 23 January 2025 a resolution was promulgated in Hungary, in which the Prime Minister expressed his agreement to the establishment of a double taxation treaty between Hungary and the United States of America. According to this, he also authorised the Minister of National Economy, the Minister of Foreign Affairs and Trade and the Minister of Justice of Hungary to take the necessary steps to conclude the new Hungarian-U.S. tax treaty.
As we wrote in our previous article, the provisions of the 1979 Hungarian-U.S. tax treaty, which was valid until 2024, no longer applies since 1 January 2024, given that the official communication stated that the U.S. side found the treaty unfavourable. At the same time, the new Hungarian-U.S. tax treaty, which was negotiated in the 2000s and passed by the Hungarian Parliament, has not entered into force either, since the U.S. Senate has not approved it.
Causes and consequences
One of the main reasons given by the U.S. Department of the Treasury for the termination of the tax treaty in July 2022 was that the Hungarian government had communicated that the global minimum tax is not intended to be introduced in Hungary at that time. Although the Hungarian position has changed in the meantime and in October 2023 the Hungarian Ministry of Finance published a draft law on the introduction of the global minimum tax transposing EU Directive 2022/2523 into Hungarian law, the Hungarian-U.S. tax treaty has been terminated. In the light of the change in legislation, it was necessary to re-evaluate all international transactions and to examine their tax consequences, taking into account, for example, that both states are entitled to tax income from the other state under their respective national laws and that this type of income is classified as non-treaty income in Hungary.
Why is a new Hungarian-U.S. tax treaty important?
Based on the resolution that has been promulgated, a new Hungarian-U.S. tax treaty is finally expected to be drafted in the near future, which will once again resolve situations where double taxation may arise for an individual or a company. The treaty could determine in such situations which state may have the right to tax and to what extent, and in what form the avoidance of double taxation (exemption, credit method) should be ensured.
Although the establishment of the new tax treaty is still in its early stages, companies with any U.S. interest should be prepared for the changes that will occur with the establishment of the treaty.
Our experts have significant experience in both corporate and individual double taxation issues, as well as in the taxation of capital income from the United States, and are ready to help clients explore how the new Hungarian-U.S. tax treaty may affect them. Contact us!
This article provides general information and does not constitute advice.
