From 1 July 2023, the interest income of natural persons will also be subject to a 13% social contribution tax. This means that - inter alia - interest on deposit accounts, together with personal income tax, will be subject to a total of 28% tax rate.
In accordance with a new Government Decree published on 31 May 2023, interest incomes, as defined by the Personal Income Tax Act (PIT Act), will be subject of social contribution tax.
The Government left not much time for the preparation and admittedly aimed to push small investors towards government bonds.
Who is affected by the increase?
The decree applies to natural persons only, i.e. only the interest income by private individuals is subject to the surcharge.
All savings are affected?
The legislation mentions interest income generally, but not all interest is covered. A natural person is liable to pay social contribution tax on the amount of his interest income as defined in the PIT Act, with the exception of interest income from investment fund units of real estate funds, taken into account as the basis for personal income tax on interest income.
As interest income under the PIT Act, demand deposits, fixed-term deposits and investment funds - except real estate funds - and the interest and yields on corporate bonds will be subject to social contribution tax at 13%. It is important to note that – unlike other capital investment incomes including capital gains and dividends – social contribution on interest income will not be capped, i.e. will be applied without limit.
The wording of the legislation stipulates that no social contribution tax is payable on gains on real estate funds but also implies that investments previously exempt from personal income tax, including some government securities and insurance, might not be subject to the additional contribution tax.
When is the new tax applied?
The change will come into force as of 1 July 2023, however, different transitional rules might apply to various investment types:
• in the case of deposits, the date of maturity will count, and deposits that are tied up until 30 June 2023 will not be subject to the new tax, regardless of the maturity date;
• for demand deposits, the new tax will also be payable on the interest due from 1 July;
• for debt securities, typically corporate bonds, the date of purchase should be decisive;
• securities policies purchased before 1 July should not be subject to the new tax;
• for insurance policies subject to personal income tax, the date of the conclusion of the underlying agreement should be relevant.
The legislation explicitly applies until the current emergency situation persists.
By Balint Zsoldos, Head of Tax, KCG Partners Law Firm
