In the fifth section of the Portfolio Investment Day 2023 conference, Akos Barati, tax expert at Jalsovszky law firm, spoke about double taxation, where he said the following:
- Each state has its own sovereign right regarding the taxes it imposes, and it is relatively easy to regulate them at the local level, but at the international level the situation can become more complicated, as the states here have to give up part of their right to tax.
- An important concept of international taxation is double taxation: if the investor receives dividends or makes an exchange rate gain on the stock, the host country of the instrument deducts withholding tax, and then the taxes must also be paid there in the investor’s home country.
- Until now, the United States had deducted a 15% withholding tax on investments, which was fully included in the Hungarian personal income tax, so there was essentially no additional tax burden.
- However, in January 2024, the double taxation avoidance agreement with the USA will expire, so Hungarian investors who place their money in the USA will be exposed to an additional tax burden.
Regarding American stocks traded on European stock exchanges, the expert said that the issue is fundamentally important: If the share is registered in the United States, it does not matter if we buy it on a European stock exchange, we will still pay the tax on it twice.
Akos Barati said that Hungary will renew the tax treaty, but such a tax treaty would take several years to ratify, and there are also legal technical obstacles, so the expert does not expect another treaty to avoid double taxation to emerge within 2-3 years.
Image source: Ákos Stiller, Portfolio
