Income tax changes on withholding tax

The Malta Bankers' Association referred to recent changes made to the provisions of the Income Tax Act regulating withholding tax on investment income, including interest earned on bank deposits, which became retroactively effective from January 1.

The association explained that previously, 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 per cent - in which case they will not be obliged nor be given the opportunity to declare the investment income in their tax return; or

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 per cent.

In the circumstances, customers may wish to reassess their individual position, and possibly also alter the instructions they had previously given to their bank. Any such requests should be made in writing, and be submitted at least 14 days before interest becomes payable on the relevant account(s).