From 1 January 2006, withholding tax on dividends will cease in Hungary. However, dividend income of private individuals – who fall under personal income tax regulations – will remain to be subject to tax, so dividends paid to private individuals, both foreign and domestic, will be subject to the 25% standard personal income tax.
Dividend payments to foreign private individuals will be possible without the provision of their personal tax identification numbers, explains Babett Pavlics, Relationship Manager at HVB Hungary in Budapest. However, she adds that the standard withholding tax rate for dividends allocated and paid out in 2005 is 20% for both private individuals and entities subject to business taxation. Currently the 20% standard dividend tax rate can be reduced according to double taxation treaties between Hungary and the tax-resident country of the investor.
“Dividend tax will cease to exist in Hungary as of January 1 2006,” says Pavlics. “Thus, only such domestic and foreign private individuals will be subject to taxation with regard to their dividend income, who fall under personal income taxation regulation and not business taxation regulation.”