The double tax treaty between Hungary and Iran came into force on 1 January 2017.
The treaty defines the term “resident” as a person that under the laws of either country is liable to tax there by reason of domicile, residence, place of incorporation, place of management or any other criterion of a similar nature, and also includes that State or any local authority thereof. If a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident only of the State in which its place of effective management is situated.
According to the provision of the treaty, dividends given by a resident of one state and beneficially owned by a company which is a resident of the other state shall be taxable only in the other state. Undistributed profits of a company resident in one state will not be taxable in the other state unless paid to a resident of the other country, or derived through a permanent establishment in the other country.
Under the tax treaty the withholding tax on royalty and interest payments will be 5% and the term royalty includes payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work, including cinematograph films, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience.
According to the treaty, any construction projects may give rise to a permanent establishment if the project lasts more than six months.
For the avoidance of double taxation Iran will use the credit method whereas Hungary will generally use the exemption method except for business profits, interest and royalty payments where the credit method will be applicable.