Changes to the taxation of capital market transactions effective from 1 January 2008
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
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
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
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.