Bankers Association advises on changes to withholding tax

In view of the recent changes to the Income Tax Act regulating withholding tax on investment income, including interest earned on bank deposits, and which became retroactively effective from the year’s inception, the Malta Bankers’ Association has recommended that customers reassess their individual positions. Such customers, the Association explains, may also possibly alter the instructions they had previously given to their bank. Any such requests should be made in writing, and be submitted at least fourteen days before interest becomes payable on the relevant accounts.

Prior to the beginning of the year, customers whose local investment income was subject to withholding tax could elect to declare such income in their tax return. In such case, they were taxed at the appropriate rates with the result that any tax withheld by the bank was available as credit against the recipient’s tax liability, or for a refund as the case may be.

In accordance with the recent amendments to the Income Tax Act, any tax withheld is final, and cannot under any circumstances be made available as a credit against the recipient’s tax liability or for a refund.

This essentially means that customers now have the following two options:

• Receive investment income with tax deducted at 15% – in which case they will not be obliged nor be given the opportunity to declare the investment income in their tax return

• Receive investment income with no tax deducted – in which case they will be obliged to declare the investment income in their tax return and, in such case, they will be taxed at the appropriate rates which can be higher than 15%.