Rising Interest Rates Drive Increased Withholding Tax on Investments: A Closer Look

The increase in withholding tax from investments has seen a significant rise in the first quarter of this year, with proceeds reaching almost 1.2 billion euros. This is primarily due to the rise in interest rates and increasing popularity of term accounts and bonds. According to De Tijd, the hike in interest rates has both positive and negative effects on the treasury. While it makes it more expensive for the government to refinance loans, it also leads to increased income from withholding tax.

Income from 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 shift in savings and current account balances has led to decreased balances while boosting investments in term deposits and bonds.

The European Central Bank’s interest rate hikes have led to higher yields on investments, resulting in increased revenue for households seeking higher returns. However, shifting billions of euros from tax-friendly savings accounts to more heavily taxed term deposits and bonds has resulted in decreased balances on savings and current accounts while boosting investments in these areas. This trend reflects a strategic move by investors and savers seeking higher returns amidst rising interest rates and shifting market conditions.

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.

The proceeds from withholding tax increased by 45 percent during the first quarter of this year due to several factors such as rising interest rates and increasing popularity of fixed-income products like term accounts or bonds. 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.

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 amidst rising interest rates. This trend is expected to continue as investors seek higher returns amidst shifting market conditions.

In conclusion, while there are negative effects associated with hiking interest rates such as making it more expensive for government financing loans, there are positive effects such as increased revenue for households seeking higher returns on their investments through fixed-income products like term accounts or bonds. The trend towards investing heavily in these areas is expected to continue as markets shift towards riskier assets such as stocks or real estate investment trusts (REITs).