Israel – Hungary Tax Treaty

Tax Treaty Hungary

Israel – Hungary Tax Treaty

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UTC:
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+1
Budapest
Hungarian
9.6 million
Forint (HUF)
+36
hu.

Hungary-Israel relations

Hungary and Israel first established diplomatic relations in 1949. Over the years, the relationship on all levels has strengthened: political, cultural, and economic levels.

The volume of trade between Israel and Hungary amounts to hundreds of millions of dollars each year. Israel primarily exports medicines, communication equipment, chemicals, metals, engines, electrical equipment, medical equipment, and rubber and plastic products to Hungary. In return, Israel imports vehicles, machinery, electric vaporizers, chemicals, optical equipment, food, and beverages from Hungary.

Hungary is one of the most developed and powerful countries in Eastern Europe and its many advantages are evident; It is a member of the European Union, the rate of foreign ownership of assets and investments in Hungary is extremely high and the private sector is a significant component of the country’s economic prosperity when it is responsible for more than 80% of the GDP.

Details about the Embassy of Israel in Hungary

Address: Fullánk utca 8, 1026 Budapest
Phone: (00 36 1) 392-6278 / (00 36 1) 392-6283
Website: https://embassies.gov.il/budapest-en/Pages/default.aspx
Email: consular1@budapest.mfa.gov.il

Details of the Hungarian Embassy in Israel

Ambassador Dr. Bardhyl Canaj
Address: 18 Penkas St., Tel Aviv-Jaffa. 
Phone: 03-545-6666
Website: https://telaviv.mfa.gov.hu/eng
E-mail: mission.tlv@mfa.gov.hu

Bilateral agreements between Hungary and Israel

Several agreements were signed between Israel and Hungary:

  1. Convention for the Prevention of Double Taxation
  2. Free trade agreement
  3. Economic cooperation agreement

Treaty for the Prevention of Double Taxation between Israel and Hungary

The treaty between Israel and Hungary was signed in 1991 and entered into force in 1993. The purpose of the treaty is to eliminate double taxation for income taxes and to prevent tax evasion. To review the treaty for the prevention of double taxation between Hungary and Israel, click here.

Applicability of the MLI

Both Israel and Hungary signed the Multilateral Treaty (the MLI) in 2017, but while Israel ratified the treaty so that it will enter into force on January 1, 2019, Hungary has not yet ratified it. After the Hungarian government ratifies the treaty, the MLI will automatically change some of the clauses of the treaty between Israel and Hungary.

Residency for tax purposes in Hungary

1. Residency of an individual for tax purposes – An individual who stayed in Hungary for more than 183 days in the fiscal tax year in question will be considered a tax resident.

Information regarding determining single residency in Israel can be found here.

2. Residency of a company for tax purposes – A company will be considered a resident of Hungary if its effective place of management is in Hungary.

To review the conditions under which a company is considered a resident of Israel for tax purposes, click here.

The tax system in Hungary

The Hungarian Tax Authority is called the “National Tax and Customs Administration of Hungary”.

Click here for the official website of the Hungarian Tax Authority.

Income tax: 15% – There are two options to calculate the taxable income, Hungary recognizes expenses of up to 10% of turnover even without proof.

Corporate and company taxation: 9%.

VAT: 27% – the highest in Europe as of today. But there are areas on which there is VAT at a rate of 18% and 5%, Depending in the tax field. In general, there’s tax plans that allow you not to pay tax on apartments and investments.

Capital gains tax: 9%.

Minimum tax – the tax authority in Hungary has started a procedure of  minimum tax at the rate of 2% of the turnover. The tax base is a complex calculation that sometimes also includes owner loans (when the owner is an individual). Certain companies can be significantly affected by this tax and are therefore considering a change in the holdings structure.

 Withholding tax

 

Hungary Internal tax rate

Israel Internal tax rate

Treaty Withholding Tax

Personal Income tax (Tax brackets)

15%

0%-50%

Corporate income tax

9%

23%

Individual capital gains tax rate

9%

25%-30% (plus exceptional income tax for high earners at 3%)

 

Branch tax

9%

23%

Withholding tax

(Non-Resident)

Dividends

15%

25% or 30%

5%/15%

Interest Rates

15%

15%/25%/23%

0%

Real estate tax

20%, 40%, 50%

Margin or 15%

 

Royalties

15%

23%-40%

0%

VAT

27%

17%

Inheritance tax

18% (but a preferential 9% rate applies to residential property).

0%

Under the domestic rules, there is no withholding tax (WHT) on dividends, interest, or royalties paid to non-individuals.

Inheritance and estate tax in Hungary

The rate of inheritance tax and gift tax is 18% with an exemption of a certain amount and a full exemption for first degree family members.

A preferential tax rate applies to residential property. The transfer of property between family members is tax-free.

In Israel, there are no inheritance taxes or estate taxes.

The Hungarian currency

The currency of Hungary is called Hungarian forint, the currency symbol is HUF.

Transfer prices in Hungary

Transfer pricing guidelines are regulated by Hungarian legislation, they were established in accordance with the transfer pricing principles of the OECD.

For more information on transfer prices in Hungary click here.

For information on transfer prices in Israel, click here.

Relocation

There is a growing mass of immigrants to Hungary due to the liberal immigration policy in Hungary as well as the low living costs.

Hungary offers many employment opportunities and attracts foreigners who are mainly engaged in the field of real estate, entrepreneurship, and investments, not without reason that the rate of foreign ownership of assets and investments is high.

In order to relocate to Hungary for work purposes, two permits are required: a residence visa, and a ten-year work visa.

Citizens of EU countries are not required to produce these two certificates.

Real estate in Hungary

For the past 6 years, the economic growth trend in Hungary has been positive.

Real estate prices in Hungary are cheaper than real estate prices in other European countries and even israel. 

Foreign citizens who wish to buy real estate in Hungary are required to obtain written permission from the relevant authorities – a bureaucratic procedure that will take at most three months.

The tax rate for the purchase of real estate in Hungary is 4%. In some cases it can be 2%.

Hungary’s economy had been damaged significantly by the 2008 crisis and real estate prices increased. The main reason for the crisis was the rising value of the Swiss Franks because many Hungarian mortgages were in the Swiss Franks.

Until 2012 – the decreased value of real estate continued, but during 2014-2018 the growth rate of estate prices grows dramatically. One can’t sell agricultural land to a foreigner without an agricultural Hungarian license.

Foreigners can purchase other estates under a governmental permit (cost 170 euros and takes approximately a month to receive).

In Hungary, in real estate purchases, the presence of an attorney is required, and he signs the agreement as one of the parties.

Under national control, three entities are defined – the state, local councils, and associations. These national entities have different options for purchasing real estate. All three of these entities have the right of first refusal for certain properties for preservation purposes.

This right is usually recorded in the land registry but not always. The land registry restrictions may have enjoyment ties. When conducting a real estate transaction, the signature of the person with the enjoyment tie, who agrees to the transaction, is required.

Payment conditions include a 10% unrefunded advance payment.  In the case of a foreigner, keeping this 10% in a trust fund until you receive governmental approval is important. It is advised to condition the agreement with governmental approval.

The land registry in Hungary is friendly and professional, it has information from previous periods. 

For more details about tax real estate click here.

Business activity between Hungary and Israel

Our offices have business relationships with lawyers and accountants in Hungary and we provide our clients with professional assistance regarding setting up a business, opening a bank account in Hungary, etc.

More information on investing, buying, and selling real estate abroad can be found here.

Transfer of funds from Israel to Hungary

In accordance with the Income Tax Ordinance in Israel, Section 170(a), certain money transfers from Israel to Hungary require the approval of an assessor on behalf of the Tax Authority. The conversion of the NIS to the forint is done in banks through an intermediate conversion to the euro, a matter that makes the currency conversion very expensive.

The rate differences are commissions that are usually hidden from the customer’s eyes and reach a rate of up to 5%. Therefore, we recommend not to transfer through the banks but through international companies that we work with.

For more information on money transfers abroad, click here.

Business entities in Hungary

General partnership: partners have joint and several liability. No minimum capital is required, and no registration fees.

Limited partnership: there must be at least one general partner who is responsible for the obligations, and a limited partner who is not responsible for the obligations. No minimum capital is required.

Limited liability company: There is a minimum capital requirement of 3 million HUF. This is the most common organizational structure in Hungary.

Sole Proprietorship: The sole proprietor has full responsibility for the actions and obligations of the sole trader. This form of business can only have one member.

Investment incentive laws in Hungary

As part of the trend to encourage investments in Hungary, medium-sized enterprises are eligible for tax incentives for development, provided that the current value of the given investment exceeds 100 million HUF.

The minimum threshold for small businesses is 50 million HUF.

An additional tax credit is given for investments that meet energy efficiency goals.

This type of tax incentives can be utilized at a rate of up to 70% of the calculated CIT liability in reducing the development tax incentive utilized for other investments.

Social security tax in Hungary:

The employee’s National Insurance contribution rate is 18.5%, the employer’s contribution rate is 13%.

Hungary’s Double Tax Treaties:

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