AOW, pension and tax in Hungary: the occupational pension taxed nowhere, the AOW in the Netherlands instead

With most destinations on this site the question is: who taxes your pension. With Hungary the answer for your occupational pension is: nobody. And for your AOW: the Netherlands. That's a combination you have to understand before you fill in a single form.

The occupational pension: to Hungary, and tax-free there

The treaty dates from 1986, was concluded with the Hungarian People's Republic and has never been amended. Article 18 paragraph 1: pensions and similar remuneration paid to a resident of one of the States in consideration of past employment shall be taxable only in that State. So your occupational pension goes exclusively to Hungary, without threshold and without Dutch source-state tax. For that you apply to the Dutch tax authority for the wage tax exemption, with a Hungarian certificate of residence.

And then Hungary does something special. The Personal Income Tax Act lists what falls under nyugdíj, and point m of that list is: a benefit described as a pension in a treaty for the avoidance of double taxation. So your Dutch occupational pension is, for Hungarian law, a nyugdíj. And annex 1 of the same act says: nyugdíj is tax-free. The NAV writes it without fuss: nyugdíj is a tax-free benefit, no return is filed for it.

After the exemption in the Netherlands you therefore pay tax on your occupational pension nowhere. That's no construction and no scheme you have to apply for; it's the law.

The AOW: exactly the other way round

The treaty has a third paragraph in article 18, and that turns the AOW around: any pension paid under the provisions of a social security system of one of the States to a resident of the other State may be taxed in the first-mentioned State. So the Netherlands may tax the AOW, and the Netherlands does.

Hungary in turn exempts the AOW, because article 24 paragraph 4 says that Hungary grants an exemption for income that may be taxed in the Netherlands — with progression, but with a flat tax that does nothing.

The trap is in the application. Whoever applies to the Dutch tax authority for the wage tax exemption "for my pension and my AOW" asks too much: for the AOW they're rejected, or worse, after a wrongly granted exemption an additional assessment follows. Apply for the exemption for your occupational pension, and leave the AOW alone.

The government pension and the annuity

Article 19 paragraph 2: a pension paid by the Dutch state for services rendered shall be taxable only in the other State if the individual is a resident of, and a national of, that State. So ABP stays Dutch, and Hungary exempts it. Whoever holds Hungarian nationality alongside the Dutch sees it go to Hungary — and there it's tax-free as a treaty pension.

An annuity that doesn't come from employment is not a pension within the meaning of article 18. It falls under article 22, the residual article, and goes to Hungary — but whether it counts as nyugdíj there is the question, and without that status you pay the flat tax. And a lump-sum commutation of a pension the Netherlands may tax, says article 18 paragraph 2. That's the conversation with a tax adviser who knows both systems.

What is still taxed then: fifteen percent

Hungary has one rate for income tax: 15%, without brackets. That touches wages, profit, rent from a property in Hungary, and an annuity that doesn't fall under nyugdíj. Income the treaty leaves with the Netherlands — the AOW, the government pension, the rent from your Dutch home — you don't include in the Hungarian base; if you file a return for another reason, you mention it as information.

Your AOW comes along in full

Apart from the tax: within the EU the AOW is paid without reduction. Report your move to the SVB in time, with the date, your Hungarian address and your bank details. Your further accrual stops on the day of deregistration; whoever leaves before AOW age can continue it voluntarily.