US trusts offer several benefits to nonresidents seeking uncompromising asset protection with even zero % tax rate. Furthermore, there is no registration requirement for trusts in the US, no automatic exchange of banking information, and the federal tax rate on non-U.S. source income is 0%. In states like Delaware, Wyoming, South Dakota and Nevada the state taxes are also 0%.
The EU trust registered in Hungary enjoys very favorable tax treatment in Hungary as well as full tax compliance as the trustee must report the trust’s annual financial statement to the Hungarian Revenue Service.
As a result of full tax compliance no one can challenge the trust from a taxation perspective and there is always available proof of the source of the funds.
The tax benefits of the EU trust registered in Hungary may be summarized in three main topics:
1, Transfer of assets
Setting up a trust and transferring assets into a trust in Hungary is fully tax free, there is no tax or a similar type financial charge or burden.
2, Trust income
The qualified Hungarian trust is subject to a special tax exemption regime and all the financial incomes of the trust are tax exempt. Financial incomes are dividend, interest, capital gain, FX gain, swaps gain, profit from options and receivables, and similar types of incomes. A trust is qualified for tax exemption if the following requirements are met. The trust’s settlor and beneficiaries must be private individuals and the trust may have only financial income.
The non-qualified Hungarian trusts as corporate taxpayers also enjoy the tax benefits of the Hungarian tax regime:
- incoming dividend is tax exempt
- the participation exemption regime results in tax exempt capital gain
- the intellectual property exemption regime results in tax exempt capital gain
- the vast double tax treaty network of Hungary reduces the foreign sourced income’s WHT to 0-10%, respectively
- every cost item which is related to the profit generation activity is tax deductible
- loss carried forward for five years
- qualified royalty income’s 50% is tax deductible resulting in 4,5% effective tax rate
- general corporate income tax rate is only 9% flat
3, Asset distribution
Asset distribution is separated into two parts:
- capital distribution which is always tax free in Hungary
- yield distribution which is withholding tax free if the beneficiary is a legal entity and subject to maximum 15% withholding tax if the beneficiary is a private individual. The applicable DTT may reduce the WHT rate to 0-10%. However, private individuals enjoy a tax exemption or a dollar-to-dollar tax credit in their home country.
- the trustee is allowed to open a permanent savings account for the trust if it is a qualified one. In this case, all income coming from securities is tax exempt on both the trust and individual level; resulting in zero withholding tax upon distribution.
The above main benefits of tax treatment provide several opportunities for tax and estate planning, taking into account that Hungary maintains a vast double tax treaty network, the country doesn’t have offshore connotations, the trust is accounted and the trustee creates strong substance for the trust and the underlying companies.