As of January 1, 2024, the double tax treaty between Hungary and the United States (hereinafter: the Treaty) has ceased to be in force. Consequently, both countries now determine tax liabilities solely based on their domestic legislation, which can result in double taxation of the same income, without the possibility of tax credit or exemption.

This newsletter aims to highlight the key impacts of the termination of the Treaty on the taxation of individuals from a Hungarian perspective – particularly in light of the approaching Hungarian personal income tax return deadline.

Individuals most affected by the change

Affected individuals may include, among others: Hungarian-American dual citizens; Hungarians living and working in the US for an extended period; US citizens earning income from employment in Hungary; and Hungarians receiving capital income from the US or rental income from US real estate.

Impact of the termination on tax residency

Tax residency remains a key factor in assessing tax liabilities which must be evaluated separately in both states. In the absence of the Treaty, it may occur that an individual is deemed a tax resident in both Hungary and the US, thus both countries are entitled to tax the individual’s worldwide income. For instance, a Hungarian citizen who has lived and worked in the US for years but retains his Hungarian residence card may still treated as a Hungarian tax resident. As a result, from 2024 onward, his worldwide income may be subject to Hungarian Personal Income Tax – while the US may do the same based on its rules.

Treatment of double taxation under Hungarian rules

As the exemptions and tax credit provisions of the Treaty are no longer applicable, only the credit options allowed by the Hungarian Personal Income Tax Act may be considered:

• For separately taxed income (e.g. dividends, interest), income tax paid in the state where the income was earned may be deducted, but up to a maximum of 10%.
• For income included in the consolidated tax base (e.g. wages, sale of US real estate), 90% of the tax paid in the US can be deducted, but no more than the Hungarian PIT rate (15%).

In both cases, only the foreign tax actually paid and not refundable to the private individual may be deducted.

Tax implications by income type

Below we review how tax obligations have changed under Hungarian law after the termination of the Treaty for several major income types – certain capital income, real estate sale and rental income, and wages:

• Capital income

The US may impose up to a 30% withholding tax on dividends and interest income, and due to the lack of the Treaty, this income is now also subject to Hungarian taxation. However, due to favourable changes in Hungarian law following the Treaty’s termination, income derived from securities issued by, or interest paid by, entities based in the US will not be subject to the higher tax burden applicable to ‘other income’ according to the Hungarian PIT Act from 2024 onwards. Capital market transactions conducted via US-based brokers may still considered to be controlled capital market transactions in Hungary, allowing for offsetting of gains and losses and preserving the possibility of tax equalization for trades executed through US brokerage firms.

Hungarian tax residents may deduct US withholding tax on the above-mentioned income, but since personal income tax payable in Hungary cannot be less than 5% of the tax base in case of separately taxed income, capital gain from the US may face an effective tax burden of up to 35%.

• Real estate income

Income from the sale of US real estate by a Hungarian tax resident is no longer treated as separately taxed income but is now included in the consolidated tax base under Hungarian law. Therefore, the exemption rules on after five years of ownership does not apply. Furthermore, if the individual is covered by the Hungarian social security system, an additional 13% social contribution tax applies. However, the Hungarian payable PIT can be reduced by up to 90% of the US tax paid, but not beyond the Hungarian PIT.

Previously, rental income from US real estate was only subject to US taxation for a Hungarian resident, but now, due to the absence of the Treaty, it must also be reported and taxed in Hungary, using the same 90% inclusion mechanism mentioned above.

• Wages

Hungarian private individuals working in the US while maintaining their Hungarian tax residency must still declare their US income in Hungary. However, they may no longer apply the exemption rule formerly provided by the Treaty. Instead, 90% of the US tax paid may be deducted, up to the Hungarian PIT.

Foreign residents with Hungarian income

US resident private individuals working in Hungary who do not qualify as Hungarian tax residents (e.g. US-Hungarian dual citizens working temporarily in Hungary without a Hungarian residence card or other grounds for residency) are treated as foreign tax residents in Hungary. In such cases, the income attributable to Hungarian workdays is subject to a 15% Hungarian personal income tax, and no tax credit is available for US tax paid due to the absence of the Treaty.

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As demonstrated above, the termination of the Treaty may have significant tax implications for affected private individuals. The automatic exchange of information between the Hungarian Tax Authority (NAV) and the US IRS remains in place, so non-compliance or misreporting of tax liabilities can be easily detected.

The filing deadline for the Hungarian personal income tax return for the 2024 tax year is May 20, 2025. As this deadline approaches, it is especially important for affected individuals to review their 2024 income and seek expert assistance to ensure proper reporting.

As it remains uncertain when a new double taxation treaty between the two countries might come into effect – and under what conditions – taxpayers must proceed based on existing national legislation, for which we recommend consulting a tax advisor, especially in complex tax matters.

For further questions, feel free to contact our advisors:

Krisztián Vadkerti – Partner (vadkerti.krisztian@pkf.hu)

Katalin Volpert – Senior Tax Advisor (volpert.katalin@pkf.hu)

Dr. Anett Schirling – Junior Tax Advisor (schirling.anett@pkf.hu)