Tax increase: 13% more tax on investments from July!

Under Government Decree 205/2023 (31 May), the government will introduce a 13% social contribution tax on certain savings (bank deposits, publicly issued investment certificates, bonds, life insurance policies for savings and voluntary pension savings) in addition to the 15% personal income tax currently known as interest tax.

From 1 July, interest income on certain investments will be subject to a 13% social contribution tax on top of the interest tax. It is important to note that in this case (unlike, for example, dividends and capital gains) there is no upper limit on the social security liability. However, interest earned on real estate funds and government securities will continue to be exempt from the social contribution tax liability (no personal income tax is payable on government securities issued after 1 June 2019).

The government's aim is to shift the structure of savings through tax and other capital market regulatory instruments, and to shift both the population and financial market participants to the government securities market.

What income will be subject to social contribution tax in addition to interest tax from July?

• In the case of interest income on bank deposits, payment account receivable balances and fixed-term deposits, social contribution tax is payable on interest on deposits placed on deposit after 30 June 2023;
• In the case of yields on publicly traded bonds and units, social contribution tax is payable on the interest or yield on securities acquired after 30 June 2023;
• In the case of certain securities, social contribution tax is payable on the interest or yield of securities acquired after 30 June 2023;
• The liability to pay social contribution tax arises after 30 June 2023 for winnings and securities drawn on a prize deposit;
• In the case of life insurance policies for savings purposes, social contribution tax is payable on insurance payments made after 30 June 2023.

What will the net yield be after 1 July 2023?

In the example below, we show how net yield have developed so far for an annual investment of HUF 100,000 and how this will change under the new regulation. It can be seen that the interest tax has already significantly reduced the value of the net yield, but with the introduction of the social contribution tax obligation the amount of net yield available has been significantly reduced. The reduction in net yield is likely to drive investors towards government bonds in the short term.

On which financial products will then not have to pay the social contribution tax?

As mentioned above, no social contribution tax will continue to be payable on units in real estate funds and government securities (including the Discount Treasury Bill).

Given that the yield received on savings deposited in a Permanent Investment Account is not considered interest income under the Personal Income Tax Act, therefore no social contribution tax is payable on this income.

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Should you have any questions regarding this newsletter, the tax experts of VGD Hungary will be pleased to assist you.

This newsletter provides general information and does not constitute tax advice.