Rules for certain taxes related to exchange trading were considerably modified from 1 January 2008. Thus from 1 January 2008, the calculation of the income derived from the exchange rate gain from exchange transactions does not take place by transaction, but based on the total transaction gain and total transaction loss. In addition, the rules for tax offsetting have also changed and accordingly, the rule for tax offsetting is relevant for the imputing of the losses from exchange transactions within two years. A common significant change to the rules for tax on interest and capital gain tax is that in the case of income which can also be taxable abroad, the taxpayer pays the amount of the tax abroad while in Hungary he/she shall pay taxes net of this amount.

Tax on interest

Based on the modification of the Act on Personal Income Tax, which enters into force on 1 January 2008, two important changes have to be taken into consideration.

The first one is that after the interest income, which can be taxable abroad, you only have to pay here the amount which is net of the tax paid abroad. However, it is important to stress that if the income is from a country with which Hungary does not have a double taxation treaty, at least five percent of the income must be paid in Hungary as a tax, regardless of whether the foreign tax was fully paid or not.

According to the changes entering into force on 1 January 2008, the yield of the foreign investment note qualifies as interest income, as opposed to the former regulation which categorised it as “other income”, regardless of whether it was introduced into the domestic market. It is an important change that the name of investment notes now is “collective investment security”. Accordingly, the provisions on income from exchange transactions shall apply to income generated during the assignment of such securities on the stock exchange after 1 January 2008, unlike in the case of the former regulation, based on which, such were taxed as interest income.

Capital gains tax

As a result of the modification of the Act on Personal Income Tax, the relevant rules on income from foreign exchange gains have changed similar to that of the tax on interest, i.e. the tax on the income gained by a Hungarian private person from the foreign exchange gain, which can be taxed abroad, is decreased by the amount of the tax paid abroad. If the foreign country and Hungary do not have a double taxation treaty, the amount of the payable tax must be at least five percent of the income.

Gains from exchange transactions

A significant change as a result of the modification of the act is that, unlike in the case of the former regulation, the calculation of the income does not take place by transaction, but based on the difference between the total transaction gain (i.e. the total of the transaction gains accounted for in the tax in cash) and the total transaction loss (i.e. the total of the transaction losses accounted for in cash), where such difference will serve as the tax base. In addition, it is important to mention the changes to the tax offsetting rules which previously only meant the aggregate value of the gains and losses of the exchange transaction. However, according to the rules effective from 1 January 2008, the rule for tax offsetting is relevant for the imputing of losses from exchange transactions within two years. Accordingly, the tax offsetting is the product of the loss from exchange transactions reported in the tax year and the two years preceding the tax year and the 20% tax rate, however, any tax offsetting from either of the two years preceding the tax year, which was previously enforced, must be deducted from this. It is also significant that this amount cannot exceed the tax on the income from exchange transactions reported in the tax year and the two years preceding the tax year (from which the tax offsetting enforced in the previous two years is also deducted).

Dividend tax

A significant change that entered into force on 1 January 2008 is the10% tax on the dividends and interim dividends of securities traded not only on the stock exchanges of EU member states but also of the EEA countries.

Income from securities rights

In the case of assigning purchase, subscription and sales rights for securities, the taxation rules for the income from such transactions has also changed significantly from 1 January 2008. The title to the income is always determined collectively by the legal relationship between the parties and the circumstances of the acquisition. If the establishment, acquisition or exercise of the right took place under conditions which are the same for anyone, the extent of the tax is 25% of the acquired income. It is important to stress that the income acquired in this way will be taxable, even if the private individual obtained the right to the security free of charge or under favourable terms. It is also significant that if securities are issued for the purchase and sales rights for securities and they are assigned, it will qualify as income from foreign exchange gains. If such an assignment takes place as an exchange assignment transaction, the provisions for income from exchange transactions shall apply.