Basic exemption on pensions
In 2017 the basic exemption in event of pensions was 2,832 euros (236 euros per calendar month) and general basic exemption from income tax was 2,160 euros per year (180 euros per month). Pensioners have the right to receive the total income exempt from tax 4,992 euros (416 euros per month).
Beginning from 2018 general basic exemption up to 6,000 euros in a year applies to pensions (up to 500 euros per calendar month). If a pensioner’s annual income exceeds 14,400 euros in a year (1,200 euros per month), then the basic exemption shall decrease gradually to zero. If the annual income exceeds 25,200 euros, the basic exemption shall be zero.
Contributions to mandatory funded pension
A resident natural person may deduct the contributions to mandatory funded pension withheld and paid pursuant to subsection 281 (1) of the Income Tax Act from the income during a period of taxation.
During the years 2014 to 2017 the tax rate for contributions to mandatory funded pension was either two or three per cent. The obligation to withhold the contributions to funded pension and the tax rates applied to a particular person during the years 2014 to 2017 can be checked according to the personal identification code or by Mass Query.
Beginning from the year 2018, the tax rate for the contribution to mandatory funded pension is two per cent for all obligated persons.
Changing supplementary funded pension fund units or insurance contract surrender value
Upon placing the surrender value of supplementary funded pension insurance contract into a voluntary pension fund, the five-year term shall be considered from the date of the earliest date of conclusion of insurance contract. It is possible upon the entry into an insurance contract to carry over the redemption price of the units of a pension fund into insurance premiums without the interruption of the five-year requirement of the collection period. The five-year term shall be deemed to be as of the date of the initial acquisition of the units if it is earlier than the date of entry into the insurance contract. The term is considered as of the earliest date or from the date of entry into the contract or the date of the initial acquisition of the units.
Upon the shifting of the accumulation reserve, the contribution made earlier cannot be deducted from the income on taxation of the income because the person had been entitled to receive the tax incentive on that part already earlier.
Life insurance contract with an investment risk
Upon taxation of income received under a life insurance contract with an investment risk (hereinafter insurance contract) the date of entry into the contract is relevant.
In the case of a life insurance contract with an investment risk (IREK) concluded before 1 August 2010, the amount to be received after 12 years of the conclusion of an insurance contract is exempt of tax. Tax exemption concerning the contracts with the duration of 12 years applies until 31 December 2023. If the disbursement is received within 12 years as of the entry into the insurance contract, the amount received minus insurance premiums paid under the same contract shall be subject to taxation. Tax liability arising from income derived from the life insurance contract concluded before August 2010 may not be deferred. An amount received under the insurance contract (taxable or exempt from tax) may be transferred to an investment account as a contribution for further reinvestments. Disbursements from an investment account in the amount of the contribution are not subject to taxation.
In case of a life insurance contract with an investment risk concluded as of 1 August 2010 there are two options for taxation of income. If the underlying assets of an insurance contract meet the requirements specified in § 171 (2) of the Income Tax Act, a taxpayer may opt for an investment account system. If a policyholder has notified an insurer beforehand that an insurance indemnity is received from the financial assets acquired for money in the investment account specified in § 172 of the Income Tax Act, the insurer shall be exempt from an obligation to withhold income tax. Upon receipt of a disbursement under an insurance contract it must be transferred to an investment account immediately. A person, who has notified the insurer, must keep in mind that if he or she fails to transfer the received amount to the investment account immediately, it shall be regarded as a disbursement from the investment account.
An alternative is not to involve the insurance contract concluded as of 1 August 2010 in the investment account system. In such case the received amount minus insurance premiums paid under the same contract shall be subject to taxation. The investment account system is not practical if, for example, the recipient of a disbursement is a beneficiary or another person – other than an insurer, for both persons must declare the amount received as income.
In general, income tax is not charged on insurance indemnities in the event of accident or death or property insurance. However, if a person has deducted the insurance premiums related to an insured event or the acquisition cost of the insured assets from the business income, the insurance indemnities are subject to taxation in business income.