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Tax Treaty between Hungary and Kyrgyzstan has Entered into Force — Orbitax Tax News & Alerts

The income tax treaty between Hungary and Kyrgyzstan entered into force on 18 September 2021. The treaty, signed 29 September 2020, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Hungarian personal income tax and corporate tax and covers Kyrgyz tax on income and profits of legal persons and income tax on individuals.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services in a Contracting State through employees or other engaged personnel if the activities continue for a period or periods aggregating more than 6 months within any 12-month period.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 15% of the paying company's capital; otherwise, 10%
  • Interest - 5%, with an exemption for interest paid:
    • in connection with the sale on credit of any merchandise or equipment;
    • to the Government of a Contracting State;
    • in connection with any loan or credit guaranteed by the Government of a Contracting State
  • Royalties - 5%

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

  • Gains from the alienation of immovable property situated in the other State;
  • Gains from the alienation of shares or comparable interests, such as interests in a partnership, deriving more than 50% of their value directly or indirectly from immovable property situated in the other State; and
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State.

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

Kyrgyzstan applies the credit method for the elimination of double taxation, while Hungary generally applies the exemption method. However, Hungary will allow a deduction (credit) in respect of tax paid in Kyrgyzstan in accordance with the provisions of Article 10 (Dividends), 11 (Interest), and 12 (Royalties).

Entitlement to Benefits

Article 27 (Entitlement to Benefits) provides that a benefit under the treaty shall not be granted in respect of an item of income if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty.

Effective Date

The treaty applies from 1 January 2022.