Tax withholding for investments in Notes - Q&A
Dear Investors!
We have noticed that many of your questions related to Notes were about withholding tax. This is why we decided to move the discussion about it to a separate thread. Please post your questions or doubts below and we will make sure to answer all of them.
Short recap from our latest Blog post:
Tax withholding for investments in Notes
When private individuals invest in Notes, we’re legally required to deduct a withholding tax from their income, depending on their country of tax residence. Importantly, investors are entitled to relief from double taxation under double tax treaties.
While income tax differs from country to country, we don’t expect the withholding tax to be higher than the income tax that individuals are currently paying for income from investments via claims. We’ll provide more details on tax withholding on the date of Notes launch.
Please feel free to share your questions! Thank you!
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Comentario oficial
IMPORTANT!
Your feedback needed: What do you need from Mintos to declare your taxes in your country of tax residence?
We wish to provide you with convenience when it comes to declaring your taxes. Based on your inputs, we can prepare the necessary templates and formats that will be the most useful for managing the requirements of your local tax authority when it comes to income made on Mintos. Please, fill out this short form: https://docs.google.com/forms/d/e/1FAIpQLSdiHeJY9uRRYz5W35f-c6NmetimX1INe3JsealwEpY61yNYGg/viewform
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Dear Investors, we just published the Q&A Article. You can find it here: https://www.mintos.com/blog/mintos-investors-qa-lets-talk-about-notes/
Please let us know if you have any questions! -
Does tax withholding also apply to Late Payment Fees, Secondary Market Gains or Campaign Rewards?
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I don't normally pay tax in my country of residence (France) as my annual income is below the tax threshold. Is it possible to reclaim the withholding tax paid in Latvia?
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Unless I'm mistaken, in The Netherlands 'bronbelasting' is taxed for companies, not private individuals?
And, as an individual, we pay tax on total Net Worth, not on the income from investments?5 -
In Germany we have a "Freistellung" an amount up to our tax free allowance for bank interest. This we have to allocate to any banks that would otherwise withhold tax on interest, only above the amount allocated has to be taxed with withholding tax. I still have an unallocated amount of my Freistellung and in the past my local tax office got quite upset if I didn't allocated everything but then later claimed a refund of withholding tax. This is all clearly listed on the annual statements from banks that normally withhold tax on interest paid. Will Mintos be operating this system for the German tax system or will I be getting further angry comments from the tax office?
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This smells weird to me.
Are returns going to increase to compensate these taxes?
the minimum tax is 10%, not counting the taxes of the country of residence , which can be from 10% to 20%2 -
Looks like the change is from lending towards investing. In the NL, this means a change of tax regime. It makes it way more complex when taxes are withhold in a different country.
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In the Netherlands, there is no tax on interest income. There is (or rather *was*) only a tax on virtual income on capital, depending on your total net worth. This tax was thrown out by the courts recently, so currently there's no tax. And even when this tax did exist, there's a threshold of roughly €50000 for individuals or €100000 for couples, under which you are exempt from this tax. Many individuals don't pay this tax.
Will Mintos give back the withheld tax if I'm not tax liable in my country?
Seriously, I love you guys, but if you push this through without compensation, you're pricing yourself out of the competition.
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Thank you for your questions! Keep posting them and we will make sure to answer all of them!
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Can you explain me, what exactly is tax resident certificate? In my country NRA do not issue this "kind" of document. The only document is CERTIFICATE OF FISCAL RESIDENCE within the meaning of the Double Tax Convention. Will you accept it as valid tax resident certificate?
One more. In attached document from Deloitte, reduced Withholding Rate for Bulgaria is 5%. What this meaning, Mintos will withhold 5% from interest and person like me must declare only 5% to NRA?10x
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WARNING: I have no relation with Mintos and I am not a tax advisor nor offer tax advice. The following applies only to individuals, company taxation is different.
Many people have questions to which I could provide some unofficial answers as they seem to be related to how international taxation works more than with Mintos.
When you invest in a foreign country, you pay taxes in your country of residence for most of or all your income, and taxes for some of your income or none in the foreign country according to the local laws of each country. When laws of each country state that you have to pay taxes in both countries for the same income we use the term double taxation, as the same income is taxed twice.
In most countries, tax law says that you have to pay taxes from all income from all sources and from all countries in the world (global income) in your country of tax residence (unlimited taxation). But, if you are a non-tax-resident in a country, usually tax law says that you only pay taxes for income coming from that country (limited taxation).
As double taxation is bad for investors, countries have reached to agreements to avoid such double taxations (double taxation treaties). In those treaties, two countries split their taxes between them by giving exemptions on taxation in one of the two countries or by reducing the amount of tax (reductions in withholding tax of the foreign country + tax credit, deductions in the tax return in the country of residence).
Each country has its rules to determine whether an individual is a tax resident in that country or not, and double taxation treaties usually (but not always) contain rules to avoid individuals being considered tax residents in both countries at the same time.
The foreign country for claims was the loan originator country (in theory you should have been taking care of filling tax returns in those countries, as stated in the terms and conditions of the agreements, unless you were exempt by a double taxation treaty or the loan originator or Mintos was withholding or paying the tax for you).
Now with Notes, the foreign country is Latvia where Mintos operates, and it takes care of paying Latvian taxes for you.
1. Can I reclaim the withholding tax paid in Latvia (see also the next question)?
No, unless you are or become a tax resident in Latvia during the year and have tax reductions or exemptions or pay less tax than non-residents, the tax withheld is higher than the one established by the double taxation treaty that Latvia has with your country of tax residence, or a Latvian law that I do not know exempts you from taxation in Latvia (not very likely). If that is the case, get info at https://www.vid.gov.lv/ or ask your Latvian tax advisor. Those taxes are for the government of Latvia and are regulated by Latvian laws and they have nothing to do with your country of residence rules or your rights in your country of residence if you are non-resident in Latvia.
To avoid having to reclaim the taxes withheld in excess back, provide Mintos with the proper certificate of tax residence.
2. Can I deduct the Latvian withholding tax from the taxes that I am going to pay in my country of residence?
Probably, if the amount to deduct is not higher than the one established by the double taxation treaty that Latvia has with your country of tax residence (e.g. tax treaty says 10% tax maximum for Latvia, and withholding tax has been a 20%. In that case, you might be able to claim the difference to the Valsts ieņēmumu dienests [VID, Latvian State Revenue Service], but it will be costly and require a Latvian tax advisor). You have to look for deductions for the avoidance of double taxation or tax credits in your country of residence. Ask your local tax advisor or administration.
3. I do not pay taxes or I do not pay taxes for interest income in my country, should I pay the Latvian withholding tax?
Very likely yes. Those taxes are for government of Latvia and are regulated by Latvian laws and they have nothing to do with your country of residence rules or your rights in your country of residence.
4. In Germany we have a "Freistellung" an amount up to our tax free allowance for bank interest. Will Mintos be operating this system for the German tax system or will I be getting further angry comments from the tax office?
As far as I know Mintos does not deduct German withholding taxes. The taxes you pay in Latvia have nothing to do with the Germany "Freistellung". Do not claim a refund of the Latvian withholding tax to the office of your country of residence. Instead, ask for deductions for the avoidance of double taxation or tax credits, so the German tax office will deduct the Latvian withholding tax directly from your German taxes. It is very likely you can apply your German tax free allowance when you declare income coming from Mintos in your tax return, but this has nothing to do with the refund of any kind of withholding tax.
5. My tax return will be more complicated to fill?
I would clearly require to fill new fields or new forms together with the ones you have filled until now for your country tax returns if you apply for a deduction for the avoidance of double taxation or tax credit, or if Notes are considered a different kind of income than loan interest. Notes probably have similar taxation than over the counter (sold in a non-regulated or official market) bonds.
6. Does tax withholding also apply to Late Payment Fees, Secondary Market Gains or Campaign Rewards?
Probably, especially if you do not provide a certificate of residence in a country that is not considered a tax haven. Campaign Rewards are usually considered interest and would be subject to withholding tax if paid by Mintos, but if the loan originator is the one paying and Mintos acts as a mere intermediary it will not be subject to withholding tax and according to campaign terms and conditions that is usually the case (except if the loan originator is from Latvia). For those who provided Mintos with a certificate of tax residence in a country of the OECD is very likely that Late Payment Fees and Secondary Market Gains would have no withholding tax as they are usually only taxed at the country of residence of the seller, and the capital gains tax is paid by the seller. Those both are usually considered capital gains in double taxation treaties or are taxed in the same way as capital gains and not considered interest. Double check with the double taxation treaty that Latvia has with your country of tax residence.
Prospectus of Notes say that a tax would be withheld on secondary market sales and late interest as under Latvian tax laws there are taxed the same as regular interest. It is very likely that Mintos is not going to apply the withholding tax if you provide a certificate of tax residence in a country of the OECD to Mintos.
7. Can you explain me, what exactly is tax resident certificate? In my country NRA do not issue this "kind" of document. The only document is CERTIFICATE OF FISCAL RESIDENCE within the meaning of the Double Tax Convention. Will you accept it as valid tax resident certificate?
CERTIFICATE OF FISCAL RESIDENCE within the meaning of the Double Tax Convention between Latvia and Bulgaria is the document that you need if your country of residence is Bulgaria.
8. One more. In attached document from Deloitte, reduced Withholding Rate for Bulgaria is 5%. What this meaning, Mintos will withhold 5% from interest and person like me must declare only 5% to NRA?
I do not know about the document he is talking about, but, if you provide Mintos with the CERTIFICATE OF FISCAL RESIDENCE within the meaning of the Double Tax Convention between Latvia and Bulgaria, Mintos will withhold the 5% of your income from interest instead of a 20% of Latvian taxes. The tax that you'll pay in Bulgaria will not be affected unless you apply for a tax credit to the NRA that will deduct from your taxes the same amount as the withheld by Mintos from your Bulgarian taxes.
9. Are returns going to increase to compensate these taxes?
Probably not, but I really do not know. Not, unless Mintos or the loan originators are willing to reduce their profit margin, maybe for attracting more investors.
EDIT: campaign rewards might be not subject to withholding tax.
EDIT2: campaign rewards might be subject to withholding tax if the loan originator is Latvian and tax withholding also apply to Late Payment Fees and Secondary Market Gains for sure if a certificate of tax residence is not provided.
EDIT3: improved explanation of international taxation and definition of double taxation
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For German residents, this form appears to be required. Needs to be filled and submitted to the local tax office (Finanzamt).
https://www.formulare-bfinv.de/ffw/catalog/makePDF.do?path=catalog://Unternehmen/doppelbest/034450
Most of it is pretty self-explanatory. Other parts are impossible to guess correctly.
Now, @..., what we need from Mintos is the following information.
Page 2 of the above-mentioned form asks for:
1) Name und Anschrift des Schuldners der Vergütungen (ausschüttende Gesellschaft)
English: full name and full address of theremuneration debtor (distributing corporation)
2) Bezeichnung der depotführenden Stelle und Depotnummer
English: name of the depositary bank and deposit no.
Thanks in advance.
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Thank you @ismresp, good overview.
However I believe that the requirement "When you invest in a foreign country you have to pay taxes in the foreign country" is not applicable. Hence no double taxation.
It IS true when you have a (permanent) residence in the foreign country,
or you invest as a business. Not as a private person(?)
If your government is very strict, they could say that you invest AS a business, if the total amount and effort is significant. But with Auto-invest enabled the effort is minimized...0 -
Thanks Markus Niels Rückert! Found the same form and it's looking not that easy to fill out. But we will manage it! Already asked my Finanzamt via Elster what I need to do to get a "Steuerinländerbescheinigung". Maybe it would be better if Mintos uses the correct wording if they address their German clients? It should be as stated in the form you shared: Antrag auf Erteilung einer Ansässigkeitsbescheinigung / Certificate of Residence. Then one also finds quite a lot Search hits ;)
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Due to my fiscal situation I will not be able to deduct foreign withheld taxes. I have no payable taxes to deduct it from. I will upload the tax residence declaration once I get it, but even then I will just lose 10% of my return. How long will claims still be available?
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The form that Markus has shared for German residents has fields that I do not think need to be filled.
The accrual date does not need to be filled (that one is when you as asking for the certificate for a single operation of bank diposit).
Also the Bezeichnung der depotführenden Stelle und Depotnummer might only for bank diposits and is not applicable for Mintos.
Name und Anschrift des Schuldners der Vergütungen (ausschüttende Gesellschaft) should be for the entity or company that would withhold the taxes and pays them to the Latvian State Revenue Service (VID), and whose name would appear in the VID forms and will provide the withholding tax certificates.
Don't know if it would be Mintos itself or the Mintos's company that issues the Notes.
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For Dutch residents: you can request the certificate of tax residency (woonplaatsverklaring) from the Belastingdienst by sending them an email. Full instructions can be found here:
https://www.belastingdienst.nl/wps/wcm/connect/bldcontentnl/belastingdienst/zakelijk/internationaal/vermogen/teruggaaf_of_vrijstelling_van_buitenlandse_bronbelasting/teruggaaf_buitenlandse_bronbelasting_woonplaatsverklaring_aanvragen0 -
Be aware that Mintos has rejected my Tax Certificated (Double taxation Lativa/Ireland document) issued by the Irish government. The reason they gave me is that it doesn't fulfill the requirements.
So Mintos, please, can you tell me how should the Irish government modify their documents for you, in order to completely fulfill all your requirements? I promise I'll let them know.
Or is this a try to stealthily steal an extra 10% putting the law as an excuse?
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This transition is going to work out really bad for Mintos. They sent us an email to get the declaration of residence on May 19th. And then they opened the market for notes on May 25th. I am still waiting for my declaration of residence. Ofcourse I am not going to buy notes when I lose 20% of my return.
Also Mintos states that 98% of investors live in countries that have a treaty to prevent double taxation. I wonder if they ever tried to find out how many people could deduct the remaining 10% from their local income tax. The majority of people in my country (the Netherlands) don't pay any wealth tax, so they also cannot reclaim that 10%. I wonder if that is very different in other countries.
Even when you can reclaim that last 10% you are still going to have to wait for it for a year.
And then there are people who just don't want to go through all the hassle and find an easier way to invest their money elsewhere.
I think a lot of people are going to leave this platform for another one that doesn't withhold any taxes.
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Would Mintos provide this withholding tax certificate signed and stamped (electronicaly [Regulation (EU) No 910/2014] or sent by post, scanned signatures and stamps are not valid) both by Mintos's income payer and the VID / SRS?
Otherwise is not posible to apply for double taxation tax credits in my country of residence.
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Part 1:
Mintos might lose some small Spanish non-company investors with this transition to Notes because the Spanish Tax Agency (Agencia Estatal Tributaria Española, AEAT, also known as Agencia Tributaria) only allows to deduct the Latvian withholding tax if the investors provide to AEAT the right documents, and those documents have to be written in Spanish, signed and stamped or electronically signed (Regulation (EU) No 910/2014) by the Valsts ieņēmumu dienests (VID, Latvian State Revenue Service).
EDIT: bureaucratic procedures that I explain in this and the following posts are optional and not mandatory.
If you do not want to deduct your Latvian taxes from your Spanish taxes you do not have to do anything of this.
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Part 2:
For getting the withholding tax certificate from VID for the first time, you need to travel to Latvia or to give powers of attorney to a Latvian tax advisor that you hired to get registered in the VID in order to be allowed to use the Electronic declaration system (EDS), that is exclusively in Latvian language.
Alternatively, you can apply for the tax certificate by post every year, but I doubt the VID sends international post, so you’ll need someone to receive the certificate on your behalf (e.g. a tax advisor).
Then you have to get the Hague apostille of the tax certificate (obtained from your tax advisor or from the EDS) at a Latvian sworn notary (25.34 €). The tax advisor will charge you an extra fee for doing it for you.
Once you have the documents in Spain, you'll have to translate the document to Spanish as the VID is not issuing certificates in Spanish, by a sworn translator with a licence issued by the Spanish Ministry of Foreign Affairs that will charge you at least 30-50 € (price can increase depending on the number of words or pages in the document).
All this have to be done every year.
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Part 3:
Unless you have invested more than 20,000 € in Latvia or got above 1,200 € / year in profit all this hassle and its costs are not worth it. So, you'll just have to give up applying for the optional double taxation deduction and to accept that the Latvian withholding tax of 10% (maybe a 5% if that promising regulation is approved) are non-tax-deductible losses.
On the other hand, investors can risk it, deduct the withholding tax in their Spanish tax return, and wish for the AEAT to not care for tax payers committing 10€/year tax fraud. Fines for tax fraud at this level are 50% of the defrauded taxes.
This might push those small investors to look for better results, or maybe the lower risk of Notes in case of Mintos default or fraud will convince them to continue investing in Mintos, or even it might attract new investors. Only the future will tell.
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ismresp
Did you get the Spanish certificate of tax residency from the AEAT?
I see that you need to have Cl@ve or Digital signature to do so... But if I then have to through the process you described as well its a lot of hassle to continue investing.
Many many thanks for your clarification of the Spanish Tax system... Reminds me I still have to do the 2021 Declaracion de la renta
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Dear Angus,
First part:
I already obtained tax residency certificate from AEAT and send it to mintos. Without it, loses would be of a 24% instead of a 12%. You can ask it at the AEAT in person with "cita previa" if do not want to get Cl@ve or a digital certificate.
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Hi Angus,
2nd part:
The deduction with tax credit (deducción por doble imposición internacional) of the Latvian 10% withholding tax in your IRPF tax return (declaración de la Renta) is optional.
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Hello Angus,
3rd part:
If you are OK with losing the 12% of the income, you do not need to do all the paperwork to get the Latvian withholding tax certificate.
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Hola Angus,
4th part:
If you are an small investor you can risk it and apply for the optional deduction without the Latvian tax certificate. Probably AEAT is not going to review your tax return and ask for complementary documents for a 10€ deduction, and the penalty for "getting caught" is proportional to the not proven deduction.
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Buenas tardes Angus,
5th part:
I recommend you to get cl@ve or a digital certificate (such the FNMT one, and I recommend getting the appointment for ID at AEAT as is less saturated than at INSS) as allows you to do a lot of paperwork online at home, and if you are going to invest in crowdlending many platforms will require you the certificate of tax residency for the corresponding double taxation treaty (acuerdo de no doble imposición), and you can get a 0% of withholding tax with it for loan originators from some countries in other platforms (but not in mintos).
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"Please post your questions or doubts below and we will make sure to answer all of them."
When do we get answers? My question above from 19 days ago still stands.
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