In the first quarter of this year, the proceeds from withholding tax increased by 45 percent to almost 1.2 billion euros, mainly due to the rise in interest rates and the increasing popularity of term accounts and bonds. This increase was reported by De Tijd, who noted that while higher interest rates are making it more expensive for the government to refinance loans, they also have positive effects on the treasury.
According to new figures from the Federal Public Service Finance, income from withholding tax increased by 362 million euros compared to the same period last year. Anyone receiving dividends or earning interest from bonds or term deposits is subject to a 30 percent withholding tax. Withholding tax on dividends saw a 25 percent increase in the first three months of this year compared to the same period last year, while there was an 81 percent increase in other movable income, mainly from fixed-income products like term accounts or bonds.
The significant increase in withholding tax on proceeds from investments is attributed to two main reasons. Firstly, the European Central Bank’s interest rate hikes have led to higher yields on investments. Secondly, households have been transferring billions of euros from tax-friendly savings accounts to more heavily taxed term deposits and bonds, as they offer higher returns. This shift has resulted in decreased balances on savings and current accounts while boosting investments in term deposits and bonds.
Between February 2023 and February 2024, around 30 billion euros moved from tax-friendly savings accounts to term deposits and bonds. Additionally, families invested a record amount of 33 billion euros in bonds last year, all subject to the 30 percent withholding tax on proceeds. This trend reflects a strategic move by investors and savers to seek higher returns on their investments amidst rising interest rates and shifting market conditions.
In conclusion, withholding tax has seen a significant increase in recent years due to several factors such as rising interest rates and growing popularity of fixed-income products like term accounts or bonds. Households are increasingly shifting their funds from low-tax savings accounts to more heavily taxed investment options as they search for higher returns amidst market fluctuations.