Changes to taxation of income from investment insurance and capital redemption contracts as of 1 January 2020
The taxation practices of partial withdrawals made from investment insurance and capital redemption contracts will change at the start of next year to match those of many other investment products, for instance fund investments or direct equity investments. In future, the contract’s income will still not be subject to tax annually, but instead when the contract ends or funds are withdrawn. Changing investment objects within a contract can also still be done free of tax in the future.
Any losses that may have accrued at the end of the contract will be deductible from capital income. For companies, the loss can be deducted as a business expenditure.
The change will impact the income tax point
According to the current tax practice, withdrawals made from investment insurance and capital redemption contracts are made first from the invested capital and the accumulated income is not taxed until the income is withdrawn or the entire contract ends.
Following the change in taxation, withdrawals of funds from investment insurance and capital redemption contracts that have generated returns always include a proportion of the return, which is subject to capital gains tax. A share of the withdrawn funds that at the withdrawal date is in proportion to the share of returns on the entire contract’s savings is considered taxable income.
Example of the taxation of income as of 1 January 2020
The capital invested in the investment insurance is EUR 20,000. The value of the investment at the withdrawal date is EUR 24,000, i.e. the capital is EUR 20,000 and the income is EUR 4,000. EUR 2,000 is withdrawn from the contract. The proportion of income withdrawn is calculated as 4,000/24,000 x 2,000 = 333,33 euros. Capital tax of 30 per cent is levied on EUR 333.33, which is EUR 100. EUR 1,900 will be paid into the customer’s account.
In future, any losses will be tax deductible
At the moment, any losses are not tax deductible.
In future, any losses will be deductible as capital gains tax when the contract ends. The losses are tax deductible in the year the contract ends and for the following ten years. The amount of losses is the difference between the amount paid to the investor and the payments he/she has made.
Investment insurance and capital redemption contracts will continue to be flexible and administratively effective investment solutions
The changes in taxation will not require any measures from you and you can continue investing in your current contract as before.
Even after the change in taxation, investment insurance and capital redemption contracts will offer a flexible and administratively effective savings and investment solution. At your disposal is an extensive range of investment objects and you can change investments within contracts without tax consequences. With investment insurance you can also transfer assets flexibly to future generations.
For more information, please contact our customer service at +358 200 31100 (lnc/mnc).