The first agreement on the avoidance of double taxation and prevention of fiscal evasion between Hungary and Iran entered into force on 1 January 2017. Iran has concluded more than 40 tax treaties but very few of them provide for zero withholding tax rates on rental income and consulting fees. Thus, this specific tax treaty can be a good platform for multinationals looking to invest into Iran.
The agreement is applicable to any individual and company liable to tax under the laws of Iran or Hungary.
If any company is resident in both contracting states, it shall be taxed only in the state where the effective management is located.
The key provisions of this agreement are discussed below.
Income from any shares or rights such as dividends shall be taxable in the residency state of the beneficial owner. Income from royalty and interest rates realized in the other country will be subject to a 5% withholding tax in the country of residence of the beneficiary. The royalty income includes any payments received for the right of use or a consideration for the use of any copyright such as patent, trademark, design or model, plan, literary, scientific work or formula, cinematograph films and for any information about experience in industry, trade, market or science. The interest income includes sale on credit of any merchandise or equipment, credit or loan of any kind granted by a bank or a governmental authority.
Income from consultancy and lease in other country shall be taxable only in the state of residence of the beneficiary.
Capital gains derived by a resident of one country from the alienation of immovable assets situated in the other country are taxable in that other country as are movable assets of a permanent establishment held by a company in the other country.
A company or movable property relating to the operation of ships, aircraft or road and railway vehicles in the other country shall be taxable only in that country. Additionally, if a resident of one country has more than 50% of shares or other comparable corporate rights of immovable assets located in the other country, directly or indirectly, those shall be taxed only in that country.
Lastly, it is worth noting that any construction project with duration exceeding six months in the other country, may rise to a permanent establishment according to the tax treaty.