21/8/2008

Collective Investment Schemes
 

CIS guide   2. A Brief Summary of the Investment Income Provisions

The Investment Income Provisions are included in Articles 33 to 42 of the Income Tax Act and were introduced by means of Act XVII of 1994. Amendments to these provisions relating to collective investment schemes were introduced by means of Act IX of 2001.

In accordance with the provisions of the above mentioned articles, a "payor" is obliged to deduct tax from a payment to a "recipient" of "investment income".

Definitions of the terms "payor", "recipient" and "investment income" are found in Articles 41 and 41A of the Income Tax Act. According to the provisions of these articles -
  • "payor" is the person who is liable to make, or if different, who makes a payment of investment income and includes an authorised financial intermediary


  • "recipient" is a person (individual or other, including a collective investment scheme) who is resident in Malta for tax purposes during the year in which investment income is payable to him. This term also includes receivers, guardians, tutors, curators, judicial sequestrators and committees acting on behalf of such resident persons and trustees or foundations where the investment income is for the benefit of such resident persons. This term does not include, however:

    1. banks carrying on banking business under the Banking Act
    2. persons carrying on the business of insurance
    3. any company which is owned and controlled, directly or indirectly by the persons referred in (1) and (2) above
    4. companies registered under Article 24 of the Malta Financial Services Centre Act.

  • "investment income" consists of:

    1. interest paid by a bank licensed in Malta on bank deposits
    2. interest, premiums or discounts paid by -

      • the Government of Malta, or
      • a corporation or authority established by law, or
      • a company or other legal entity in respect of a public issue

    3. Capital gains arising on the -

      • disposal of shares or units in a collective investment scheme not being capital gains arising on the disposal of shares or units in a prescribed fund, and
      • surrender or maturity of unit-linked insurance policies

    4. Dividends distributed by a non-resident collective investment scheme out of profits allocated to a non-prescribed fund through the services of an authorised financial intermediary.
However, where income referred to in items (1) to (4) above is received by a collective investment scheme, such income is only considered as investment income if such income is to be allocated to a prescribed fund of such scheme and to the extent that such income is not paid by another collective investment scheme.

Tax is withheld at the rate of 15%. However, in the case of investment income which does not constitute bank interest and which is payable to a collective investment scheme in relation to a prescribed fund, tax is withheld at the rate of 10%.

Payors are to remit such withheld tax to the Commissioner of Inland Revenue not later than the 14th of month following that in which the investment income was paid. An exception to this rule exists where the payor is an authorised financial intermediary and investment income consists of capital gains or dividends.

Recipients have the right to elect that the investment income is paid without deduction of tax. This right is not available where -
  • the investment income consists of capital gains
  • the payor is an authorised financial intermediary (See Section 6)
  • the recipient is a collective investment scheme.
Where tax has been withheld, the identity of the recipient is not revealed to the Commissioner of Inland Revenue. However, where the recipient elects to receive investment income without deduction, the payor is obliged to reveal such identity on a request by the Commissioner of Inland Revenue.

Where tax has been withheld, a recipient that is an individual has no obligation to declare the income. Where the recipient elects to receive investment income without deduction of tax, he is obliged to declare such income in his tax return.

 

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