Taxes are essential to encourage long-term savings. This is the conclusion of the study conducted by the Securities Market Authority (CMVM) on this topic, which refers to six main measures, stressing the importance of promoting savings by Portuguese families, which It decreases and stops mostly in warehouses.
“Long-term savings play an essential role in improving the financial security and well-being of individuals and families, as well as in financing businesses and the economy in general. It is very challenging and often challenging, especially for families,” points from the document published in Global Investor Week.
That is why states encourage and support the formation of such savings, that is, through tax advantages. Portugal already includes some of these benefits in its tax system, but the supervisor is of the opinion that more is needed. Here are six metrics:
1. Preferential taxation of the new “European PPR”
Pan-European Repair Product (PEPP) – effective March 2022 which Promised to organize at the national level By the government by the end of this year – is the goal of the first recommendation. CMVM advocates the establishment of a PEPP tax system “in line with the system of public capitalization”.
This alignment could mean tax deductions for taxpayers who subscribe to PEPPs, tax relief for PEPP investment portfolios and more favorable taxation of payments made by PEPP to their subscribers when they later receive benefits.
2. European investment funds
For European products, CMVM also considers EU Long-Term Investment Funds (ELTIF), and requires the tax system of CITs to be applied – both to this product and to trusts – allowing their owners to benefit from tax deferral on refund or reimbursement in the event of reinvestment.
3. PPR-style savings accounts
4. Reworking the IRS Group
A reformulation and increase of the IRS deduction of the amounts applied to long-term retirement savings products (depending on various possible avenues) are seen as necessary to encourage long-term savings.
5. Capital reinvestment in tax-deferred funds
Deferral of taxes on the recovery or repayment of investment funds in the event of reinvestment is also one of the measures. In the case of inter-fund transfers, the relevant taxes will be levied only when the investor leaves the investment fund department and at more favorable rates the longer the investment in that department.
6- “Matching Contributions”
Outside of the field of taxation, CMVM also proposes creating programs to encourage long-term savings by creating an advance commitment between businesses and workers regarding savings on future salary increases. These “matching contributions” will allow for tax deferrals for recovery or repayment in the event of reinvestment, according to the supervisor.
“Savings for specific long-term goals allow families to increase their own funds to carry out these expenditures, reduce the use of credit, the monthly effort of families associated with credit contraction and the risk of default for the financial sector.”, he asserts.
CMVM adds that the application of long-term savings in financial instruments tends to have advantages, since the return on savings applied to them tends to be higher than that of other financial products, such as bank deposits.
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