The proceeds from withholding tax increased by 45 percent in the first quarter of this year to almost 1.2 billion euros. This is due to the rise in interest rates and the increasing popularity of term accounts and bonds, De Tijd writes on Friday.
The increase in interest rates makes it more expensive for the government to refinance loans, but does not only have negative consequences for the treasury. Compared to the first quarter of last year, income from withholding tax increased by 362 million euros. This is evident from new figures from the Federal Public Service Finance.
Anyone who receives dividends or earns interest from bonds or term deposits pays 30 percent taxes on them. Withholding tax on dividends yielded 25 percent more in the first three months of this year than in the same period last year. There was an even greater increase of 81 percent in other movable income. This mainly concerns the interest on fixed-income products, such as term accounts or bonds.
30 billion
There are two reasons why savers and investors pay so much more withholding tax on the proceeds of such investments. Firstly, the European Central Bank’s interest rate increases have caused yields to rise significantly. On average, a term deposit with a term of up to one year yielded 3.43 percent in February, compared to 2.26 percent in February last year, according to data from the National Bank.
The second, perhaps even more important reason, is that households have moved tens of billions of euros from tax-friendly to more heavily taxed savings and investment products, because term accounts and bonds offer a higher return than savings and current accounts.
The savings accounts – whose interest up to 1,020 euros is exempt from withholding tax – saw around 30 billion euros drain away between February 2023 and February 2024. The balances on current accounts – on which most banks do not pay interest, so no withholding tax is due – decreased by 22 billion euros in the same period.
State bonds
At the same time, families parked an extra 35 billion euros in term deposits and last year bought a record amount of 33 billion euros in bonds, including government bonds. And the proceeds on those products are subject to 30 percent withholding tax from the first euro.