Hungary: Proposed improvement of the fiscal regime for life insurance products with investment component

Hungary's National Economy Ministry has submitted a new tax package to Parliament on October 28, providing for the 6% healthcare contribution on interest income removal for different financial product, including life insurance policies that held at least 80% of their assets in forint-denominated government securities, reports

The news provided by the Hungarian journal reads that everyone will be exempt from the 6% healthcare contribution on interest income next year. The five-bracket system (6%, 14%, 15%, 20%, 27%) on different types of income will be replaced by a two-bracket system, with rates of 14% and 27%.

"The health care contribution has not been imposed on forint-denominated government securities or investment funds and life insurance policies that held at least 80% of their assets in these instruments. This means the tax advantage of these instruments will be gone versus other investments creating capital gains. The interest on bank deposits, yields on investment funds, life insurance policies subject to the health care contribution and long-term investment accounts (TBSZ) even if the holder uses the gains within the specified 3-yr or 5-yr period will all be exempt from this type of tax. The state has been taking 21% of interest income and returns (22% until the end of 2015), and now it will take only 15% in the form of the remaining interest rate tax. In the current close-to-zero interest environment this is unlikely to significantly raise net returns, but it is definitely a welcome measure that should incentivise savings in the aforementioned instruments," have commented's analysts.

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