When private individuals invest in Notes, which are regulated financial instruments, we are legally required to deduct a withholding tax from their interest income.
The process of tax withholding works in the following way:
- You invest in a Set of Notes.
- The borrower of an underlying loan or the lending company makes an interest payment (interest, delayed interest, pending payment interest).
- Based on the cash flows of the underlying loan, the Note issuer makes an interest payment on the corresponding Set of Notes.
- The full amount of the interest payment due to you is credited to your account.
- At the same time, a part of the interest payment is automatically deducted from your account as withholding tax based on the applicable tax rate.
- When you declare your income in your country of tax residence, you can usually reduce the total tax payable by the withheld amount. There should not be a situation where you will be double taxed.
You can see the withheld amount as a separate entry in the account statement. The total withheld amount is visible on the Overview page and will also be available in your tax report. Mintos also issues tax statements to each investor that will serve as evidence for the withheld tax. Please note that no withholding tax is deducted for legal entities.
The withholding tax rate depends on your country of tax residence and can be checked in the Tax details section of your account settings. Currently, the following rates are applicable:
- For investors who are tax residents of Latvia, the withholding tax rate is 20%, in line with the Personal Income Tax Act.
- For investors who invest as private persons and are tax residents of EU/EEA countries outside of Latvia, the withholding tax rate is 5% of interest income. This rate is automatically applied to your account the next day after you confirm your EU/EEA tax details in the Tax details section of your account settings. To benefit from this rate, make sure you check the box I am investing as a private person. Investors do not need to submit any kind of documentation.
Note: While the standard withholding tax rate of EU tax residents is 5%, private individuals who are tax residents of Lithuania can reduce their rate to 0% if they provide a tax resident certificate.
- For all other investors, the standard withholding tax rate is 20%. The rate can be reduced if the investor provides a tax resident certificate. Please see the full list of reduced applicable tax rates (Category 3. Outside EU & EEA).
Example: Both Investor 1 and Investor 2 have invested €100 each in Notes and earned €10 in interest. Investor 1 is a tax resident of an EU country, and Investor 2 is a tax resident of a country outside the EU and has not provided a tax residence certificate. A 5% withholding tax (€0.50) will be deducted from Investor 1’s interest income, while a 20% withholding tax (€2.00) will be deducted from Investor 2’s interest income. Investor 1 and Investor 2 will receive €109.50 and €108.00 in repayments, respectively. Both investors will be able to offset the withheld amount against the total amount of tax payable in their tax declaration according to the tax laws of their country of tax residence.