A company under the KIVA tax regime is paying dividends, and among the owners are Swiss and U.S. citizens. They do not have a Hungarian TAJ (social security) number or tax identification number. What taxes are payable on the dividend payment, and is the 10% KIVA tax applicable to the dividend?
U.S. Citizen
The starting point is that a private individual can have only one tax residency, even if they potentially pay taxes in another country. Based on the question, the individual is considered a U.S. tax resident, meaning they are likely only required to pay taxes in the U.S. on their various income sources. However, it would be advisable to officially request a tax residency certificate from the U.S. tax authority. Currently, there is no tax treaty between the U.S. and Hungary, but this does not affect the ability to pay the dividend.
Since the individual has income from Hungary, this income would also be taxable in the U.S. based on their tax residency. However, if Hungary withholds tax, this can still be done despite the lack of a treaty, but the key point is that this income will ultimately be taxable in the U.S. as per tax residency. Any tax withheld in Hungary can, in principle, be credited under U.S. tax law.
A possible solution is for the U.S. tax resident to request the Hungarian payer not to withhold tax, since the entire income will be taxed in the U.S. For this, the Hungarian payer must be provided with the original, official U.S. tax residency certificate. It is worth noting that dividends are subject to a 30% tax in the U.S.
Swiss Citizen
There is a double taxation avoidance treaty between Hungary and Switzerland. This is governed by Act CLXIII of 2013, which ratifies the treaty signed in Budapest on September 12, 2013, between Hungary and the Swiss Confederation concerning income and wealth taxes.
This treaty takes precedence over the Hungarian Personal Income Tax Act, so it must be the primary reference when determining tax obligations. The treaty is divided into articles, and Article 10 deals with dividends. Since there are several scenarios for dividends, it is advisable for the payer to thoroughly study Article 10 and to consult in advance with the individuals concerned, in accordance with the article.
The essential point is that if tax is withheld in Hungary, it can be credited in Switzerland, thus avoiding double taxation. In this case, the private individual must also provide the Hungarian payer with an official Swiss tax residency certificate. Dividends may be taxed in Hungary for a Swiss citizen at a rate of 15%. In this case, the payer must also submit a “08” tax return. The Swiss private individual’s data must be provided (no TAJ number is required), and the dividend must be reported on page 7, line 364 of the M-form.
Social Contribution, KIVA
For both cases: there is no obligation to pay social contribution tax (Szocho). The payer must issue a certificate, preferably bilingual.
If a taxpayer under the KIVA regime pays dividends, the amount must be considered as an item increasing the tax base. An exception applies to dividends paid from retained earnings and taxed profits from tax years prior to the KIVA period, if such dividends are approved during the KIVA period.
Partner with Westbridge Consulting Kft.
Navigating the complexities of accounting and taxation for investments on third-party property can be challenging. At Westbridge Consulting Kft., our experienced team provides tailored accounting and tax advisory services to ensure compliance and optimize your financial strategy
📞 Schedule a consultation with our Budapest team
📧 Email: budapest@westbridgeconsulting.eu
💬 WhatsApp: +36 30 938 0892
🌐 Website: www.westbridgeconsulting.eu