Tax treatment of the compensation received by a natural person for suffered property and non-property damages

taxation compensation damages

Taxable under the Personal Income Tax Act (PITA) are the incomes from all sources acquired by the taxable person during the tax year, with the exception of the incomes which are non-taxable under the law.

The law explicitly stipulates that the compensations for property and non-property damages, with the exception of the compensations for lost profits, are tax-free. Interest on judicially established claims (non-taxable receivables) and the awarded compensations for costs in these court cases are also not taxable.

In view of the above, the compensation for property and non-property damages paid voluntarily or as a result of claim or enforcement proceedings is not subject to taxation. In the case of a case conducted and settled by an effective court decision, the accrued and paid interest to the awarded compensation, as well as the costs of the case shall not be taxed.

Persons who have received only non-taxable income are not obliged to file an annual tax return.

Therefore, if you have not received other taxable income during the year, but only paid compensation for property and non-property damages, you will not be obliged to file an annual tax return, as well as to submit another type of declaration or information to the National Revenue Agency (NRA).

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