Life After the Termination of the U.S. – Hungary Tax Treaty

In June 2022, the government of the United States terminated the tax treaty between Hungary and the U.S. on the avoidance of double taxation. The treaty officially ceased to be in force on 8 January 2023, although certain provisions remained applicable until 31 December 2023. Since 1 January 2024, income originating from the other state may be taxed by both countries under their own domestic laws, and Hungary now treats income from the U.S. as income derived from a so‑called “third country”.

1. Why is this important?

As a general rule, each country applies its own domestic legislation when taxing income. In a globalised world, however, numerous cross‑border transactions and legal relationships arise, and their tax treatment can be complex and often lead to double taxation. Modern financial markets make it easy for anyone to earn capital income from abroad, and many professions no longer require physical presence, allowing work to be performed online (digital nomads). 

A bilateral tax treaty between the source country and Hungary greatly simplifies the taxation of such international income. The treaty determines which country has the right to tax a given type of income, thereby avoiding — or at least minimising — double taxation.
In the absence of a treaty, only the domestic laws of the affected countries apply, which may result in both the source country and Hungary taxing the same income.

Hungary currently has valid tax treaties with more than 80 countries. Unfortunately, from early 2024, the treaty with the United States is no longer applicable. Interestingly, a new treaty between the U.S. and Hungary was signed in 2010 and officially promulgated, but it has still not completed the ratification process in both countries, so it cannot yet be applied.
A “one‑sided” situation has also emerged with the Russian Federation: Russia terminated the application of several articles of the treaty in 2023 — meaning it taxes solely under its domestic law — while Hungary continues to apply the treaty.

2. Period of validity

The U.S.–Hungary tax treaty is considered terminated as of 8 January 2023, but its provisions remained applicable for tax assessment purposes until 31 December 2023. Therefore, the tax treatment of income earned up to the end of 2023 did not change.
For income subject to withholding tax, the treaty ceased to apply to amounts paid or credited on or after 1 January 2024. For other taxes, the treaty ceased to apply for tax periods beginning on or after 1 January 2024.

This means that for personal income tax purposes, from 1 January 2024 both states may tax foreign‑source income under their own domestic rules. Without a treaty, income from the U.S. must be treated as income from a non‑treaty country. 

For corporate income tax purposes, income arising from transactions between U.S. and Hungarian entities must also be treated as originating from a non‑treaty country from the same date.

For example, the U.S. may withhold tax on U.S.-source income (such as dividends or interest) according to its own domestic rules and at the rates it determines, without limitation.

3. Hungarian citizenship

Under the Hungarian Personal Income Tax Act, individuals who are tax residents of Hungary are subject to unlimited tax liability, meaning they must declare their worldwide income in their Hungarian tax return—income earned from any source, in any country, under any legal relationship.

The Act defines who qualifies as a Hungarian tax resident. According to the law, a Hungarian citizen is considered a tax resident (except if they are also a citizen of another state and do not have a registered domicile or place of residence in Hungary under the Act on the Register of Personal Data and Addresses).

This means that Hungarian citizenship is a key factor. In most cases, simply being a Hungarian citizen makes an individual a Hungarian tax resident. This remains true even if the person has lived and worked in the U.S. for decades but holds only Hungarian citizenship — they are still considered a Hungarian resident and must declare their worldwide income in Hungary.

The only exception applies to dual citizens. A Hungarian citizen who also holds another citizenship is not automatically considered a Hungarian tax resident if they do not have a registered domicile or place of residence in Hungary — in other words, if they do not have a Hungarian address card.

Hungarian citizenship is therefore a highly significant factor that may establish tax residency. The exception applies only to dual citizens without a Hungarian address card. Additional criteria must also be examined, so involving a tax advisor is recommended for accurate determination.

4. What changed in personal income tax (SZJA)?

With the termination of the treaty, the U.S. is now considered a country with which Hungary has no effective tax treaty. As a result, several provisions of the Personal Income Tax Act had to be amended to adapt to the new situation and reduce unnecessary additional burdens.

Without a treaty, interest paid by a U.S. resident would be classified as “other income”, significantly increasing the Hungarian tax liability of individuals. The Act was therefore amended so that interest paid by a person resident in an OECD member state is not treated as “other income” but taxed under the rules for interest income.
Similarly, income from securities issued by an entity resident in an OECD member state is not subject to the rules on “other income”.

The definition of a controlled capital market transaction (ETÜ) has also changed. A transaction is now considered an ETÜ even if it originates from a non‑treaty country, provided it is executed with or through an investment service provider operating in a financial market of an OECD member state (the U.S. is an OECD member).

To prevent abuse, the rules on foreign tax credits have also been amended. Although it may sound unusual, it is relevant in practice that the Act allows the crediting of foreign tax paid on separately taxed foreign‑source income (such as capital income, especially dividends), but not on separately taxed income originated from domestic‑source.
Similarly, for income included in the accumulated tax base, foreign tax cannot be credited if the income is considered domestic‑source in the absence of a treaty.

5. Health care contribution – do not forget!

Many Hungarian citizens working abroad long‑term forget that under Hungarian social security rules, they may still have a payment obligation. This often stems from keeping a Hungarian registered address (address card).

Under the Social Security Act, a Hungarian citizen with a registered domicile in Hungary is required to pay contributions. If the authorities cannot identify any other contribution‑based income, the individual must pay the minimum monthly health care contribution (egészségügyi szolgáltatási járulék), which in 2026 amounts to 12,300 HUF per month.

Although there is no tax treaty, a social security agreement between Hungary and the U.S. is still in force. This means the minimum Hungarian contribution can easily be cancelled if the Hungarian citizen living in the U.S. proves their U.S. insurance coverage to the Hungarian authorities.

Without such proof, the monthly obligation will be assessed, potentially accumulating into a significant tax debt over the years.

Tower Consulting, a Budapest‑based accounting and payroll company, together with its cooperating partners, is available to assist with any accounting, payroll, or tax advisory matters in Budapest or anywhere in the country through remote, online channels.

Author: Gábor Kertész