It has been announced that the double tax agreement (DTA) between Hong Kong and Hungary, which was formally signed on May 12, 2010, came into effect on February 23, 2011, following the completion by both countries of their respective approval procedures.
The DTA sets out the allocation of taxing rights between the jurisdictions and the relief on tax rates on different types of passive income, and also incorporates the internationally-agreed Organisation for Economic Co-operation and Development standard on the exchange of tax information.
For example, Hong Kong residents receiving dividends from Hungary, but not attributable to a permanent establishment in Hungary, were previously, in the absence of the DTA, subject to a 25% Hungarian withholding tax. Under the agreement, such withholding tax rates will be reduced to 10%. If the recipient is a company holding 10% or more of the share capital of the paying company, the withholding tax rate will be further reduced to 5%.
In addition, Hong Kong residents receiving royalties from Hungary are subject to a current withholding tax of 30% in Hungary. Under the DTA, the withholding tax on royalties will be capped at 5%. The Hungarian withholding tax on interest paid to Hong Kong residents will also be reduced from the current rate of 30%, to 5%.
Hong Kong airlines operating flights to Hungary will be taxed at Hong Kong's lower corporation tax rate. Profits from international shipping earned by Hong Kong residents that arise in Hungary, which are currently subject to tax there, will enjoy tax exemption under the agreement.
The DTA will have effect in Hong Kong for any year of assessment beginning on or after April 1, 2012.
The DTA sets out the allocation of taxing rights between the jurisdictions and the relief on tax rates on different types of passive income, and also incorporates the internationally-agreed Organisation for Economic Co-operation and Development standard on the exchange of tax information.
For example, Hong Kong residents receiving dividends from Hungary, but not attributable to a permanent establishment in Hungary, were previously, in the absence of the DTA, subject to a 25% Hungarian withholding tax. Under the agreement, such withholding tax rates will be reduced to 10%. If the recipient is a company holding 10% or more of the share capital of the paying company, the withholding tax rate will be further reduced to 5%.
In addition, Hong Kong residents receiving royalties from Hungary are subject to a current withholding tax of 30% in Hungary. Under the DTA, the withholding tax on royalties will be capped at 5%. The Hungarian withholding tax on interest paid to Hong Kong residents will also be reduced from the current rate of 30%, to 5%.
Hong Kong airlines operating flights to Hungary will be taxed at Hong Kong's lower corporation tax rate. Profits from international shipping earned by Hong Kong residents that arise in Hungary, which are currently subject to tax there, will enjoy tax exemption under the agreement.
The DTA will have effect in Hong Kong for any year of assessment beginning on or after April 1, 2012.
