| 29/8/2008 |
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| CIS guide |
4. Withholding Tax Suffered by Collective Investment Schemes |
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| 4.1 - Withholding Tax on Investment Income Paid to Prescribed Funds |
When investment income is paid to a prescribed fund it will be subject to withholding tax. Income paid to a collective investment scheme is treated as paid to a prescribed fund if it falls to be so allocated by that scheme. No withholding tax is due on investment income paid to non-prescribed funds.
As was explained in Section 2, the definition of the phrase "investment income" is restricted when the recipient is a collective investment scheme. In such cases, "investment income" may only be income which is not paid by another collective investment scheme and which is to be allocated to a prescribed fund of the recipient collective investment scheme. The type of income so paid may thus only consist of -- interest paid by a bank licensed in Malta on bank deposits
- interest, premiums or discounts paid by -
- the Government of Malta, or
- a corporation or authority established by law in Malta, or
- a company or other legal entity (not being a collective investment scheme) in respect of a public issue.
Other types of income and gains derived by a collective investment scheme remain exempt from tax in terms of article 12(1)(s) of the Income Tax Act.
The rate of withholding tax on investment income paid to prescribed funds is as follows:- 15% on bank interest
- 10% on other investment income
Banks and other companies and entities that pay investment income to collective investment schemes need to establish whether that income falls to be allocated to a prescribed fund or not. Collective investment schemes are for this purpose required to inform the payor of their status as classified by the Commissioner. In any instance where a payment of investment income is payable to a fund and the collective investment scheme has not notified the payor of the status of that fund as a prescribed or a non-prescribed fund, the payor must assume that the payment is subject to withholding tax at the above-mentioned rates.
Such payors must remit the tax to the Commissioner of Inland Revenue not later than 14 days from the end of the month during which it is withheld in terms of the normal rules that apply to investment income.
As explained in Section 2, a collective investment scheme does not have the option to receive investment income without deduction of withholding tax5.
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| 4.2 - Obligation to Notify Payors on the Reclassification of a fund |
When a non-prescribed fund is reclassified as a prescribed fund it must notify its payors and withholding tax will become due on its investment income paid as from the date of that new classification.
When a prescribed fund is reclassified as a non-prescribed fund it must similarly notify its payors so that no tax will be withheld on its investment income paid as from the date of that new classification. In default of such a notification payors must assume that the fund is still a prescribed fund and continue to withhold tax.
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