Double taxation prevention treaty beetween Hungary and Hong Kong

Image Hungary signed agreement Hong Kong on prevention of double taxation and tax evasion. The most important effect will be that the Hungarian companies shall not be subject to 30% rate of withholding tax regarding interest, royalties, and services fees paid to Hong Kong companies.

The Convention covers both taxes on individuals and companies. The treaty applicable to companies incorporated in Hong Kong notwithstanding whether or not the Hong Kong companies perform acitivities in Hong Kong.

Under the treaty business profits are taxable in the State of registration of the company with few exceptions. So in the case a Hong Kong registered company carries out activities in Hungary without establishing "permanent establishment" as defined in Hungarian Corporate Tax Act shall only be taxable in Hong Kong. In case of such activities the business profit shall not be taxable neither in Hong Kong accordingly the principle of territoriality of Hong Kong tax law.

It is important rule that realization of "permanent establishment" in a state different from the state of registration the business profits are taxable in the state of the permanent establishment. So when a Hong Kong registered company carries out activities in Hungary and it creates ***adóalanyiság*** tax intellect, and part of the profits may be taxated by the Hungarian State of the Law on Corporation Tax rules.

Under the agreement interest payments generally shall only be taxated by the State of beneficial owner. In some cases the interest shall be taxable by the State of the payer. In these cases the rate shall not exceed 5, and in exceptional cases 10%.

Taxation of royalties payable mainly on usage of trademarks, copyright-protected content, patents are subject ot similar rules to interests. The witholding tax in the payer`s state - if the relevant conditions are met - shall not exceed 5%.

The agreemnt will enter into force after 30 days of the notification of the other party on the fullfillment of procedures required by national law to adpot the agreement.

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