The U.S. Treasury Department announced in July that it will terminate the United States‑Hungary tax treaty, giving a six‑month notice before the agreement ceases to apply. The treaty, originally ratified in 1979, was designed to prevent double taxation and curb fiscal evasion for individuals and businesses operating across the two countries.
Why the treaty is being ended
- Geopolitical tension – Relations between the Biden administration and the Hungarian government have soured, particularly over concerns about democratic backsliding in Hungary.
- Opposition to the global minimum tax – Hungary has been one of the most vocal EU members refusing to adopt the OECD‑led global minimum corporate tax, a stance that the United States views as hostile to its own tax policy goals.
These political factors, rather than purely fiscal considerations, appear to be driving the U.S. decision.
What the treaty provided
- Corporate tax coordination – The treaty allowed Hungarian‑registered companies owned by U.S. persons to claim exemptions or credits to avoid being taxed twice on the same income.
- Visa‑waiver eligibility – Hungarian citizens could travel to the United States for up to 90 days without a visa under the Visa Waiver Program.
Immediate consequences of termination
- Loss of treaty benefits – U.S. investors with Hungarian companies may now face double taxation unless a new bilateral agreement is negotiated.
- Visa‑waiver program removal – Hungarian nationals will no longer be eligible for the 90‑day visa‑free entry; they must obtain a standard U.S. visa.
- Potential for increased compliance costs – Companies will need to file additional U.S. tax forms (e.g., Form 5471, Form 8865) and may have to pay U.S. corporate tax on earnings that were previously exempt.
Impact on different groups
| Group | Risk / Change |
|---|---|
| U.S. citizens residing in Hungary | Their U.S. tax obligations remain, but without treaty relief they could face higher effective tax rates on Hungarian‑sourced income. |
| Hungarian citizens investing in U.S. assets | May lose the ability to travel visa‑free to the U.S., and could encounter more complex U.S. tax filing requirements. |
| Businesses operating in both jurisdictions | Must reassess supply‑chain and financing structures to avoid unintended tax exposure; may need to relocate operations or restructure ownership. |
Practical steps for affected investors and entrepreneurs
- Assess exposure within six months – Determine which income streams are currently protected by the treaty and calculate the potential additional tax liability.
- Consider alternative jurisdictions – Countries such as Malta, Bulgaria, or other EU members with stable tax treaties may offer more predictable treatment for cross‑border income.
- Diversify residency and citizenship – Holding a second passport or residence permit can provide a fallback if a treaty is terminated or visa restrictions change.
- Review corporate structure – Using holding companies in jurisdictions that maintain robust treaty networks (e.g., the Netherlands, Luxembourg) can mitigate double‑tax risk.
- Plan for visa requirements – Hungarian nationals planning U.S. travel should apply for the appropriate visa well before the six‑month deadline.
Outlook
The termination reflects a broader trend of the United States using tax policy as a tool of diplomatic pressure. While the six‑month notice is relatively generous compared with other abrupt regulatory changes, it underscores the importance of maintaining flexible, diversified international arrangements for high‑net‑worth individuals and businesses that operate across borders. Continuous monitoring of treaty status and geopolitical developments is essential to avoid unexpected tax burdens and travel restrictions.
