The Hungarian Social Contribution Tax
The Hungarian Government passed a new bylaw, Government Decree 205/2023 (V.31) on 31 May, 2023, that requires Hungarian financial providers to withhold a Social Contribution Tax on certain capital gains and interest payments and remit these amounts directly to the government.
You will find the answers to the main questions below:
What type of interest is subject to the Hungarian Social Contribution Tax (TAX)?
Interest coupon payments on Bonds, ETFs, closed-end ETFs and mutual funds purchased after July 1, 2023 are subject to the TAX.
Bonds – on both the coupon payment and the capital gains.
ETFs, Closed End Funds and Mutual Funds – The dividend payment is considered as interest and therefore subject to this tax.
ETFs, Closed End Funds and Mutual Funds that are traded in non-EEA or other countries that do not have a tax treaty with Hungary are subject to the Capital Gain Tax.
What is the standard TAX Rate?
The standard TAX rate is 13%.
If I earn interest through Bond Coupons, am I required to pay the TAX?
Yes.
When is the 13% TAX rate applied to my account?
The 13% TAX rate is applied to your account on the date when the interest coupon or the proceeds on the sale of certain types of ETFs and mutual funds (see above) are credited to your account. You will find the withheld TAX amount as a separate line item in your Activity Statement.
What currency is used for the TAX?
The TAX is withheld in the same currency in which the interest coupon or proceeds have been credited.
I am not a Hungarian resident. Do I have to pay the TAX?
Non-Hungarian residents are not affected by the TAX. The TAX is withheld based on the declaration provided by you on your tax residency.
Does the TAX apply to clients who are companies?
No.
Does the TAX apply to interest I earn through the Cash Yield Enhancement Program?
No.
Does the TAX apply to interest I earn through the Stock Yield Enhancement Program?
Under the existing rules, the TAX may apply to your interest earned through the Stock Yield Enhancement Program.
Why is trading of tax-impacted instruments limited?
Due to the duration between the announcement of the bylaw and its effective date, IB is unable to deploy the required tax withholding properly across its full global product set. To ensure correct adherence to the regulation, we must temporarily limit the ability to open new positions in affected products. Closing transactions in pre-existing positions will not be impacted. We will inform you as soon as the trading restrictions for the tax-impacted instruments have been removed.