Domestic and foreign residence: who would fall within the scope? – based on the draft

Taxpayer status and actual payment liability would be separate questions

Section 3 would distinguish four categories: Hungarian-resident and non-resident individuals, and Hungarian-resident and non-resident wealth-management taxpayers. Foreign residence would therefore not itself place someone outside the draft’s personal scope. It would primarily determine which assets fell within taxation and which debts could reduce the wealth taken into account.

Taxpayer status would not automatically produce tax payable. The asset scope in Section 4 would operate with Section 6: the amount exceeding HUF 1 billion after qualifying debts would constitute the tax base. This net-wealth threshold would differ from the HUF 100 billion band in Section 9, which would apply to the already established tax base. The thresholds would concern different stages of calculation.

Individual domestic residence would combine an external reference with an additional rule

Section 2, point 3, would initially refer to the Personal Income Tax Act’s definition of a domestically resident individual. Because the draft does not reproduce those conditions, their detailed content could not be explained from this text alone. The draft would add Hungarian citizens holding another citizenship, even without a Hungarian domicile or place of stay under the referenced registration legislation.

That addition would nevertheless have to be read with the exceptions in the same point. It would not establish that every dual citizen was invariably domestically resident. Under Section 2, point 22, foreign residence would mean not qualifying as domestically resident. Classification would therefore depend on the full domestic definition, every applicable exception and the individual circumstances considered together.

Three personal exceptions would have different conditions

Section 2, point 3(a), would exclude a non-Hungarian citizen for five years where employed in Hungary through posting, assignment or temporary agency work by a foreign employer not registered under Hungarian rules. Generally, the period would begin when Hungarian work started. Under Section 34(1), for qualifying workers already present at the proposed commencement, it would instead run from commencement.

Point 3(b) would exclude Hungarian citizens habitually living abroad for at least ten years at the reporting year’s end, regardless of other citizenship. Point 3(c) would cover long-term residence entitlement holders within Section 85 of the referenced immigration statute who spent fewer than 183 days in Hungary during the year. Arrival and departure days would count fully; further external statutory rules would not be supplied.

Wealth-management residence would depend on actual decision-making

Under Section 2, point 4, a wealth-management taxpayer established under Hungarian law would be domestically resident. A foreign-law organisation, arrangement or segregated pool could also qualify if effectively managed in Hungary. Point 35 would require examination of where the strategic, management and economic decisions governing its overall operation were actually made, rather than merely formally approved or documented.

A domestically resident individual settlor or founder would trigger a rebuttable presumption of Hungarian management. A domestic beneficiary would do so if exercising actual influence over decisive decisions. Rebuttal would require proof that decisions were actually made abroad. Under point 23, only wealth-management taxpayers not qualifying as domestic would be foreign-resident; foreign establishment alone would not suffice.

Worldwide wealth would differ from four Hungarian-connected asset categories

Section 4(1) would extend liability for domestic individuals and wealth-management taxpayers to all Hungarian and foreign assets. Section 4(2) would instead use an exhaustive list for foreign residents: Hungarian real estate, rights over or connected with it, holdings in companies formed under Hungarian law, and holdings in companies owning Hungarian real estate.

Section 2, point 5, would link the last category to foreign-registered companies meeting the referenced definition in the Duties Act, without reproducing its further conditions. Section 6(2) would also require foreign taxpayers’ debts to relate directly to acquiring, creating, maintaining or making value-enhancing investment in taxable assets. Debts associated with worldwide wealth would therefore not automatically be deductible against this restricted asset scope.

Treaties would not provide a general exemption for foreign wealth

Under Section 8(1), a differing provision in an international treaty promulgated by statute or government decree would prevail if the treaty contained wealth-tax rules. A treaty’s mere existence would therefore be insufficient. Its subject-matter scope and specific content would matter; the draft would not identify generally exempt countries or foreign asset types.

Section 8(2)–(3) would distinguish two situations. If a foreign asset taxable in the other state could be included when determining tax on remaining wealth under the treaty, its value would be included. Otherwise, it would be excluded. For the first situation, Section 9(3) would provide a separate reduction calculation, deducting computed tax attributable to those foreign assets, subject to the specified restriction.

Ending residence could also change the valuation period

Section 2, point 33, would generally define the reporting year as the calendar year. If an individual or wealth-management taxpayer ceased domestic residence during the year without regaining it before year-end, the reporting year would end immediately before cessation. Read with Section 5(2), this would mean the relevant wealth position would not always be measured on the final day of December.

Point 33(c) would provide a separate shortened period for termination of a wealth-management taxpayer. Section 35(1) would also propose a different 2026 period, running from commencement until liability arose. Section 32 would propose commencement on 15 December, not establish an existing obligation. Residence, the reporting year and the asset scope would therefore need to be interpreted consistently with one another.

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