The Hungarian Stability Savings Account (Stabilitás Megtakarítási Számla – SMSZ) is a form of tax amnesty. The definition of tax amnesty is: an opportunity for a particular group of taxpayers to disclose incomplete or unreported information about previous tax periods without fear from criminal prosecution, or in an exchange for a certain amount of collectible/penalty/tax/interest. The point is, the evasion of the penalty fare. There are many countries applying tax amnesty by using shorter or longer term programs in order to promote law abiding behavior amongst tax payers.  Not to mention, that even a lesser treasury revenue is more than nothing.

The Stability Savings Account is a tax amnesty like initiative. Its point is, that the revenue office/tax authority can’t investigate the origin and the amount of tax previously payed after the amount of money – which can’t be less than 5 million forints – deposited on the account. The interesting thing about this structure is the “time-bend” tax rate. According to the original terms of the Stability Savings Account this means, if someone withdraws the assets from the account, before three years have passed since the first deposit, than the owner has to pay double of the tax rate. In the third and fourth year, the depositor only has to pay the normal tax rate. After the fourth and in the fifth year he/she only has to pay half of the original amount of savings tax and if waits until the end of the fifth year, the money becomes tax free.

Since 1 July 2015, by accepting the budget establishing package, the parliament also modified the tax paying obligation connected to the Stability Savings Account. They disburdened the necessary requirements of tax amnesty. If the taxpayer withdraws his savings from the account in the first year after the cash in, he needs to pay 20% extra, after the first year it will decrease to 10%. This eased process only works for deposits until the 1 July, 2016. After that, the previous legislation enters into force again.

So how does the Stability Savings Account works in practice?

Let’s put it simple. The Stability Savings Account practically works like this: someone deposits 10 million forints to the account and on the second day, he can take out his money as he/she had paid the necessary tax after 20 million forints.  By this process he gets a confirmation that his income was legal. But how can this be useful for the budget?

In reality, the Stability Savings Account is not one, but two accounts. One for the money and the other is a securities account. The securities account can be used to register Hungarian or EEA governmental bonds, but only in Hungarian Forint. The cash account isn’t producing any interest, so the only investment income comes from the governmental securities account. By this, the government forces those who have offshore wealth, to buy forint based state bonds, to finance the functioning of the government, and by this reduce the state dept.  It also cuts down currency risks for the government, and makes planning easier. For this, the government declares continuous tax amnesty. Transferring money on the Stability Savings Account can be done only once, but a private person can open as many accounts as necessary.

The Stability Savings Accounts been always attacked by its critics, according to them it makes money-laundering easier. In the second part of the article, we will highlight the weaknesses of these accounts and also talk about the dangers it holds for those, who try to bring home and legalize their offshore wealth by using the Stability Savings Account.