Witholding tax on Hungarian securities down to 15%
Effective from January 1st next year, personal income tax in Hungary will be paid at a flat tax rate of 15%. Consequently, the standard withholding tax rate on all Hungarian securities (debt securities and equities) will also be reduced from the current 16% to 15%, says Clearstream Banking in a client note.
Earlier this week, the Hungarian Parliament approved the 2016 Tax Bill. The main change impacting the tax process is the new flat withholding tax rate of 15% applicable on all interest and dividends paid to private individuals says Clearstream Banking in a client alert. Legal entities will continue to be tax exempt.
No changes will occur to the tax procedures currently provided by Clearstream Banking. As a result, the firm says customers should note that interest paid on Hungarian debt securities registered in the name of Clearstream Banking will continue to be exempt from withholding tax without any action required by the customer to ensure that exemption at source is applied.
It remains the responsibility of beneficial owners that are individual persons to comply, through their annual fiscal declaration, with all legal and regulatory requirements imposed by the legislation of their country of residence in respect of all domestic and foreign income received during the respective calendar year. Clearstream Banking has no direct or indirect liability towards the respective tax authorities, including those of Hungary, if this obligation is not respected by the individual beneficial owners.
Dividends paid on Hungarian equities will be subject to 15% withholding tax. Upon submission of the currently required certification by the applicable deadlines, the following reduced tax rates may be obtained: 0% to beneficial owners that are legal entities being resident or not of Hungary; or Treaty rate to beneficial owners that are physical persons and qualify for the benefit of a reduced rate of withholding tax in accordance with a Double Taxation Treaty (DTT) between their country of residence and Hungary.
Beneficial owners that are physical persons and residents of Hungary can neither obtain relief at source nor reclaim withholding tax through Clearstream Banking.