Interactive Brokers Hungary issue

[odapunkt]

As a Hungarian tax resident, I received the following email from IB. Any of you in the same situation?

As far as I understand, any accumulating ETF that does not issue interests/dividends is safe from this bylaw, right? I invest in VWCE and XEON.

Dear Client,As you may be aware, the Hungarian Government passed a new bylaw, Government Decree 205/2023 (V.31) on 31 May, 2023, that requires financial services providers to withhold a Social Contribution Tax of 13% on certain capital gains and interest payments and to remit these amounts directly to the government.The tax only applies to positions opened by Hungarian tax payers after 1 July 2023 in interest related instruments (e.g. bonds, certain mutual funds and ETFs, etc).Due to the short duration between the announcement of the bylaw and its effective date, IBKR is unable to deploy the required tax withholding properly across its full global product set. To ensure correct adherence to the regulation, we must temporarily limit the ability to open positions in affected products. Closing transactions in pre-existing positions will not be impacted.

 

[teresad788]

@odapunkt

any accumulating ETF that does not issue interests/dividends is safe from this bylaw, right? I invest in VWCE and XEON

I'm not a Hungarian tax resident but I think you are reading it right since accumulating ETFs are not creating taxable events on their own, only if you sell.

 

[odapunkt]

@teresad788 thanks!

 

[harmonie7]

@odapunkt Unfortunately, probably not even the government knows it yet. (And even if they do they could change it and create a new law any day at 23:56 in effect from next day.)

If you speak Hungarian there was some discussion about it on the Kiszámoló blog and subreddit.

AFAIK (accumulating) ETF should be safe, but I have never heard any official confirmation of this.

(Please note that you have to pay this social contribution tax after dividends (and after income) since a long time ago, but in that case it has a maximum value and usually you reach it only with the tax of your income.)

 

[cadenny]

@harmonie7 The tangles of bureaucracy are becoming insane. So what even applies to me if I buy a dividend stock of the US? Social contribution tax if I not reach the cap from my work income. And double income tax, for both the states and Hungary? Because of the broken double taxation agreement?

 

[harmonie7]

@cadenny I think it would not be that easy...

If you use a broker from the US, due to the broken double taxation agreement, buying/selling stocks or getting dividends may not even be ellenőrzött tőkepiaci ügylet (a type of transaction with better / simpler taxation) and maybe you have to use a different set of tax laws.

 

[odapunkt]

@harmonie7 Unfortunately I don't speak hungarian. Yeah, I know about the maximum value on social contribution tax. So how much tax do we have to pay now in case we sell our ETFs?

 

[harmonie7]

@odapunkt AFAIK the "public understanding" (so not an official declaration) is that this new tax is not applies to VWCE.

So after selling VWCE, you realize capital gains and you have to pay the 15% SZJA. (Assuming you use a broker located in the EEA.)

I am not sure about XEON.

The main aim of this tax is to force the people to buy the bonds of Hungarian government (with worsening conditions), instead of other bonds. (Because the government does not have enough money. Eg. banks will have to send a notice to their customers to inform them how much money they lost by not buying government bonds.)

 

[odapunkt]

@harmonie7 15% SZJA is not too bad, yes I am using Interactive Brokers in Hungary. I do not know of any other broker which is allowed to use from Hungary (degiro is not)

 

[harmonie7]

@odapunkt There are a few others (KBC Equitas, Concorde, SAXO Bank, Swissquote), but probably they are more expensive.

 

[odapunkt]

@harmonie7 Thanks! SAXO bank and Swissquote look good from what I could read in the website, I may try them later to diversify from IB

 

[resjudicata]

@odapunkt Fascist Orban at his best again

 

[mannis]

@resjudicata He knows founder of Interactive Brokers personally so not great

 

[galaxygiochi]

@odapunkt You should move to another country…

 

[wakle]

@odapunkt As a Hungarian tax resident, you can open a TBSZ account with IB, through which you can purchase VWCE (or anything else) and then you don’t have to pay much in taxes. After 5 years, you don’t have to pay any taxes.