Hungary: New withholding tax procedure

Following our announcement A15047 and as of

30 March 2015

the following changes to the current tax procedure will be effective:

• Legal entities applying for tax exemption on dividends at source or via the quick refund are obliged to specify if they are or not fiscal residents of Hungary;
• No quick refund of withholding tax available for individuals eligible for the treaty rate;
• Standard refund of withholding tax available for legal entities that could not disclose their holdings before the dividend payment or via the quick refund;
• New template for the Power of Attorney from the beneficial owner authorising Raiffeisen Bank Hungary to apply for standard refund on behalf of the beneficial owner ; and
• New deadlines for relief at source and quick refund.

Background

Clearstream Banking¹ will appoint Raiffeisen Bank International (RBI) in Vienna, as agent to operate the Clearstream Banking direct account with the Hungarian CSD, KELER Ltd.

This will have some impacts on our current tax relief procedure as explained below. We take this opportunity to describe the total tax procedure to be followed as of 30 March 2015.

Applicable tax rates

0% on interest payments.

Hungarian law does not currently recognise the nominee concept for interest payments made on debt securities. As a result, interest payments made on Hungarian debt securities safekept for Clearstream will be exempt from withholding tax because legal entities are not subject to this tax. Clearstream Banking, as account holder, is recognised as being the registered owner of debt securities. It is the responsibility of the final investor to fulfil its tax declaration and payment obligations.

16% on dividend payments

As of 1 January 2011, the 16% withholding tax applies to private investors and to undisclosed positions on dividends paid for stock exchange listed and non-listed equities.²

Holding restriction

In the case of dividends paid on non-listed shares, private individuals resident in Hungary must pay an additional 14% of Healthcare Contribution. As a consequence, it has been decided to restrict the holding of non-listed Hungarian equities in Clearstream Banking on behalf of final beneficial owners that are private individuals resident in Hungary.

Any customer not complying with this holding restriction agrees that it shall indemnify and hold harmless Clearstream Banking for any loss, expense, liability, damage or claims, whether direct or indirect, against or incurred by Clearstream Banking arising out of or resulting from such non-compliance.

Eligibility criteria for tax relief on dividends

After submission of the required certification, the following categories of final beneficial owner may obtain reduced tax rates as indicated:

a. Depending on the issuer’s confirmation.

Beneficial owners that are not eligible for tax relief or do not certify within the prescribed deadlines will be taxed at the maximum rate of 16%.

Withholding tax procedures on dividends

For relief at source

Relief at source from withholding tax on dividends from Hungarian equities is available to the following beneficial owners only:

• 0% for non-resident legal entities;
• 0% for Hungarian legal entities; and
• Double Taxation Treaty (DTT) rate for DTT country resident individuals;

provided that the following documentation has been submitted within the prescribed deadlines:

• One-Time Certificate for Dividend Payments on Hungarian Equities, certifying that the customer is or is not the beneficial owner of all the Hungarian equities held in the account. Any changes to the information supplied in the One-Time Certificate with respect to dividend payments on Hungarian equities must be communicated to Clearstream Banking in a new One-Time Certificate.
• Tax breakdown, to be provided before each relief at source application, including:
  • The total number of shares held by the customer;
  • The total number of shares held by non-resident legal entities;
  • The total number of shares held by Hungarian legal entities;
  • The total number of shares held by disclosed DTT resident individuals;
  • The total number of shares held by undisclosed holders (considered as individuals).

If the breakdown is not submitted, the entire position will be considered as being held by undisclosed individuals and therefore taxed at the maximum tax rate.

Note: For legal entities no disclosure of names and holdings is requested. They will obtain tax exemption based only on the Tax Breakdown. No further certification need be provided, unless required by the issuer and/or the Hungarian Tax Authorities (HTA).

In addition to the Tax breakdown, for DTT resident individuals:

List of DTT resident individual beneficial owners to be provided before each relief at source application and indicating the following for each beneficial owner:

• Full name;
• Birth name;
• Date and place of birth;
• Gender (male/female);
• Mother’s full maiden name;
• Full address;
• Nationality;
• Passport/card ID number.

The List of Beneficial Owners must be uploaded electronically via the BO Upload facility under Applications on the Clearstream Banking website.

Certificate of Residence issued in English for the year of the dividend payment, it is valid from the date of signature by the local Tax Authorities until the end of the respective calendar year. It must be provided only once per calendar year by the respective beneficial owner. 

Declaration of Beneficial Ownership completed and signed by the beneficial owner to be provided before each relief at source application if requested by the applicable DTT. It remains valid for that given payment only.

Important note: In addition to the documentation listed above, the issuers, the paying agents or the Hungarian Tax Authorities (HTA) may, from time to time, require further documentation (such as a disclosure requirement). Clearstream Banking will advise customers holding Hungarian equities immediately upon receipt of such request.

Deadline for relief at source

The deadline for submitting the required certification must be received by Clearstream Banking at the latest by:

• Original documentation: two business days before the respective record date by 18:00 CET; and
• Tax breakdown uploaded from Clearstream Banking website: respective record date by 10:00 CET.

For quick refund

Quick refund is not available for individual beneficial owners.

Legal entities that did not certify their holding via the breakdown at source and were therefore taxed at the maximum tax rate may apply for a quick refund of tax only if the issuer allows such quick refund. Clearstream Banking’s local depository must submit the claim to the issuer, who decides whether to make a revision of their declaration or not towards the HTA. It is exclusively the issuer’s decision whether or not to revise their books.

If the issuer does not offer such possibility, Clearstream Banking will inform the customer before the respective income event via SWIFT/CreationOnline message.

Note: Clearstream Banking can give no guarantees with regard to the quick refund procedure as it is based on market practice and all applications depend on the good will of the paying agent. Although Clearstream Banking will assist customers with quick refund applications, it can remit to customers' accounts only the amounts that it receives.

To apply for a quick refund of withholding tax on dividends from Hungarian equities, customers must submit to Clearstream Banking:

A Revised Tax breakdown including:

The total number of shares held by the customer (the same as the number submitted at source);

• The total number of shares held by non-resident legal entities (revised);
• The total number of shares held by Hungarian legal entities (revised);
• The total number of shares held by disclosed DTT resident individuals (the same as the one submitted at source);
• The total number of shares held by undisclosed holders (revised).

Note: For legal entities, no disclosure is requested to recover the full tax amount withheld at source, unless required by the issuer and/or the Hungarian Tax Authorities (HTA).

Deadline for quick refund

Upon the confirmation of the quick refund applicability, the Revised Tax Breakdown must be received by Clearstream Banking at the latest by 10:00 CET on 15 December of the year in which the dividend payment took place.

When are quick refunds received?

The estimated time for receiving a quick tax refund is between two weeks and two months from the date of receipt of the revised tax breakdown by the Hungarian issuer.

For standard refund

A standard refund of withholding tax is available, per beneficial owner that is:

• A non-resident legal entity; or
• A DTT resident individual;

if the deadline for relief at source or quick refund (for legal entities) has not been met and provided that the application for the standard refund is made within the prescribed deadlines.

Note: Legal entities claiming with the HTA the full tax amount withheld at source must disclose their identity and provide the requested certification as per below. 

To apply for a standard refund of withholding tax on dividends from Hungarian equities, the following documentation must be submitted to Clearstream Banking:

Details of the beneficial owner, to be provided with each standard refund application:

• Full name;
• Full address;
• For individuals:
  • Birth name;
  • Date and place of birth;
  • Gender (male/female);
  • Mother’s full maiden name;
  • Nationality;
  • Passport/card ID number.

Certificate of Residence issued in English for the year of the dividend payment, to be provided with each standard refund application.

Declaration of Beneficial Ownership completed and signed by the beneficial owner (or its representative for legal entities), to be provided if requested by the applicable DTT with each standard refund application.

Power of Attorney from the final beneficial owner authorising the local agent  of Clearstream Banking’s local depository (RBI), the attorney at law, to introduce tax reclaims, to be provided once and remaining valid until revoked.

Credit Advice provided in original for each standard refund application by the last intermediary in the chain having the final beneficial owner’s account in its books.

Letter of Request to Clearstream Banking for Reclaim of Hungarian Withholding Tax authorising Clearstream Banking to reclaim withholding tax from the Hungarian Tax Authorities on behalf of a beneficial owner.

Deadline for standard refund

Documentation must be received by Clearstream Banking at the latest two months before the statutory deadline, which is five years after the respective dividend payment date.

When are standard refunds received?

The estimated time for receiving a standard tax refund is two months from the date of receipt of the documents by the Hungarian Tax Authorities.

Further information

The above-mentioned forms are available under Tax Forms to use – Hungary.

For further information, customers may contact the Clearstream Banking Tax Help Desk or Clearstream Banking Customer Service or their Relationship Officer.

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1. Clearstream Banking refers to Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Register of Commerce and Companies under number B-9248.
2. The dividends must be related to the fiscal year 2011 and onwards.