Tax-i 203: New tax regulations for the amounts paid to the Professional Insurance Funds (TEAs) and Group Pension Insurance Schemes

Recent law L.5078/2023 introduces significant changes regarding the tax treatment of contributions and benefits of ΤEAs, which are categorized into optional and mandatory, as well as the premiums and benefits of group pension insurance schemes.

Specifically, as regard income tax issues, the following will apply:

A. The new provisions (articles 105 and 106 of L.5078/2023) stipulate that contributions paid to optional TEAs and premiums paid by both the employee and the employer in the context of group pension insurance schemes cannot exceed annually and cumulatively:

  • For employees and individuals deriving income from employment, 20% of their gross income from employment.
  • For non-employees, the amount of 20,000 euros, adjusted annually according to the consumer price index.

The above apply to contributions paid after 1.1.2024 (paragraph e of article 195 of L.5078/2023).

B. Under the pre-existing provisions (case ia, par. 1 of article 14 of L.4172/2013), premiums paid by the employer for medical and hospital insurance of its personnel or for life or disability insurance in the frame of an insurance scheme, were exempt from the employee's income tax up to the amount of 1,500 euros annually. With the new provisions, such amounts paid to optional TEAs both by employers and employees are now included in the above limit of 1,500 euros.

The above apply to income acquired in tax years starting from 1.1.2024 (related paragraph 3 of article 195 of L. 5078/2023).

C. The provisions regarding the tax treatment of benefits of group pension insurance schemes are modified, and the taxation method for the benefits of optional TEA is defined as follows:

Insurance Years Separate taxation for insurance paid by Group Pension Insurance Schemes and Pension Benefits paid by TEA
  Periodic Payments Lump Sum Payments
Up to 5 10% 20%
More than 5 up to 10 7.5% 15%
More than 10 up to 20 5% 10%
More than 20 2.5% 5%

The above rates are increased by 50% in case of early redemption by the beneficiary. Specifically, for individuals insured after the age of 55, the above rates are increased by 5% for each year that is below 5 years of insurance.

Amounts accumulated by the beneficiary until 31.12.2023 should be taxed under the previously applicable provisions. While for the calculation of tax due on amounts accumulated after 01.01.2024, the total insurance years should be taken into consideration to determine the applicable tax rate (par. 15 & 16 of article 110 L. 5078/2023).

The provisions stipulating the cases in which a payment is not considered as an early redemption remain in force. Specifically, a payment is not considered an early redemption if:

  • It is made to an employee who has established a pension right or has reached the sixtieth (60th) year of age, or
  • It occurs without the employee's consent, such as in cases of the employee's dismissal or the employer's bankruptcy, or
  • It is made due to the employee's participation in a voluntary exit program.

It is provided that benefits paid in the context of group pension insurance schemes and benefits paid by optional TEAs are taxed at the aforementioned rates, regardless of the capacity under which the beneficiary was insured, i.e. as an employee or a non-employee (related paragraph 3 of Article 107 of L.5078/2023).

D. The withholding tax rates on the premiums paid under group pension insurance schemes and on the pension benefits from optional TEAs have been respectively modified.

The withholding tax rates apply to individuals receiving benefits for the first time under the above programs from January 1, 2024, onwards (related paragraph 2 of Article 105 of L.5078/2023).

To be noted that the above are exclusively based on the provisions of L. 5078/2023 and the relevant amendments to the Income Tax Code, whilst further clarifications will be provided by AADE with the issuance of a respective circular.

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