From 1 July 2023, the Government has introduced a 13% social contribution tax (Socho) on interest income, as provided for in Government Decree 205/2023 (31 May 2023).
Notwithstanding the provisions of Act LII of 2018 on Social Contribution Tax (hereinafter referred to as the "Social Contribution Tax Act"), during the emergency period, a natural person shall be liable to pay social contribution tax on his or her interest income pursuant to Section 65 of Act CXVII of 1995 on Personal Income Tax (hereinafter referred to as the "Personal Income Tax Act").
There will still be no Socho on the interest income from the property fund unit, nor on the interest (yield) on Hungarian government bonds, and the tax burden on savings in the social security account will not change.
The exemption rule for the real estate fund is contained in the above-mentioned Government Decree, while the exemption of government securities from the social tax follows from the provision of the Income Tax Act, as interest income from debt securities issued by the Hungarian state and placed on the market for the general public as the target market for investors, among others, is not to be taken into account as income.
A feeling of déjà vu comes over you when you interpret the „new” tax liability on interest published in the Hungarian Gazette. This is due to the fact that a similar provision had already been introduced in the Health Care Contributions Act.
Under the new Government Decree, interest income that is subject to income tax will be subject to Socho like many other capital gains. However, there is one important difference. While income referred to in Article 1(5)(a) to (d) of the Sochi Act (income withdrawn from a business, income from securities lending, dividends, entrepreneurial dividend base, income from exchange gains) is subject to Sochi only on the basis of a limited tax base, interest on savings is subject to this
the ceiling of 24 times the minimum wage does not apply.
As a result, if an individual realises interest income on, for example, a savings deposit or a payment account receivable balance, or on his/her publicly traded and distributed investment fund units, he/she will then have to pay an additional 13 % of Socho in addition to the 15 % of VAT, regardless of whether or not his/her other consolidated income and other capital income exceed HUF 5.568 million per year.
The rule that in the case of income under Section 1(5) of the Szocho Act, the natural person who receives the income is the person liable to pay tax remains unchanged. The provision that the tax is deducted by the payer from the natural person and paid and declared by the 12th day of the month following the month in which the benefit is received also applies.
A more difficult situation for individuals who hold their savings with foreign financial institutions, as in this case it is up to the individual to determine whether or not the yield is interest under Hungarian rules. This classification is further complicated by the mid-year amendment to the legislation.
According to Section 27 of the Personal Income Tax Act, although an individual is not obliged to pay an advance payment of income tax on interest income, if the interest income is not received from a paying agent, for example if it is credited by a foreign bank, the tax must be assessed, declared and paid by the individual in the personal income tax return by the deadline for filing the return, i.e. by 20 May of the year following the tax year.
Taking into account that the regulation will enter into force on 1 July 2023, it was necessary to provide for transitional rules, which at first reading seems rather complicated, but which meet the requirement that only interest income from transactions concluded and realised after the entry into force is subject to Socho.
Accordingly, in the case of any credit institution deposit (savings deposit) or payment account receivable balance, the Socho is payable only on the interest due for the period after 1 July 2023 on the part of the amount of interest credited and/or capitalised under the contract (including the terms and conditions of the contract) between the individual and the payment service provider that does not exceed the normal market value.
In the case of fixed-term deposits, interest is charged on the interest earned on the deposit committed after 30 June 2023. Whereas, in the case of interest income on debt securities and collective investment securities issued and traded in the public market and defined as such in the Capital Markets Act, the interest on the security acquired from 1 July 2023 is subject to the Socho liability.
If the interest income is an asset (e.g. a prize drawn on a prize deposit, a security) from which tax cannot be deducted, the taxable amount is 1.18 times the open market value of the asset (the prize fund), on which a tax is payable if the interest income is received by the individual in full as interest income in the period following the entry into force of this Regulation.
In the case of interest income from insurance performance, as defined in Section 1(d) of the Income Tax Act, the Socho is payable on the insurance performance of an insurance contract concluded from the entry into force of the Government Decree.
In the case of interest income paid in connection with cooperative loans, the soccio liability shall be assessed on the interest on the member loan granted after 1 July 2023, similarly in the case of interest income as defined in Section 1(f) of the Income Tax Act, on the part of the income referred to therein proportional to the completed conditional vesting period after the entry into force of this Regulation.
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