FAQs related to the Office of the Commissioner for Revenue.
income tax.
The information provided in the answers should serve only as guidance and does not have any legal force. For online live FAQs updates refer here
MY TAX STATEMENT INCLUDES INCOME FROM BANK INTEREST WHEN I HAD ASKED MY BANK TO DEDUCT 15% FINAL WOTHHOLDING TAX FROM MY DEPOSITE ACCOUNT. WHAT CAN I DO TO CORRECT THIS ERROR?
You should first verify if the Bank interest charged actually belongs to you. If this is so, then contact your Bank so that in future the interest will not be reported to the Office of the Commissioner for Revenue. There is no corrective action to be done on the Tax Statement which you received.
If the interest does not belong to you, ask your Bank to write to the Office of the Commissioner for Revenue correcting the error. You should then fill in an Adjustment Form (AF 1) to correct the Tax Statement.
IF I ENTER INTO AN AGREEMENT WITH THE OFFICE OF THE COMMISSIONER FOR REVENUE TO PAY AN AMOUNT DUE FOR BASIS YEAR 2000 IN INSTALMENTS, AM I CHARGED INTEREST ON THE BALANCE UNPAID AFTER THE DUE DATE?
Yes. All balances due as from basis year 1998 remain subject to a 1% interest per month or part thereof even if covered by an instalment agreement.
I HAVE BECOME A WIDOW BUT ONLY RECEIVED AN INCOME TAX RETURN UNDER THE NAME OF MY LATE HUSBAND. WHAT CAN I DO TO RECEIVE ONE IN MY NAME?
You can either phone, write or call personally at our Customer Help Section and give the necessary details namely:
◦Identity Card Number
◦Name and address (as per ID card)
◦Husband's date of death
◦Husband's Identiy Card Number (or Tax number if foreigner)
You will then receive an Income Tax Return which should be filled in with all details of income earned by you after your husband`s death. Income earned by you or by your late husband before his death are to be included in your husband`s Income Tax Return. Both returns should be signed and together with any relative documents (if any), should be mailed to the Office of the Commissioner for Revenue in Floriana.
I AM EMPLOYED AND HAVE A PART-TIME SELF-EMPLOYMENT. AM I ENTITLED TO THE SPECIAL TAX RATE OF 15% ON THE PROFIT DERIVED OUT OF THE PART-TIME JOB?
Employed taxpayers who also have income from part-time work as a self-employed can opt to fill in form TA22 and pay a tax of 15% on the Net Profit from the part-time job. The maximum amount of profit which can be subjected to this rate is €12,000. Any amount in excess of this will have to be declared in the Income Tax Return and will be taxed in the normal standard rates. The income shown in form TA22 is not to be included by the taxpayer in his annual Income Tax Return unless he wishes to claim back the tax so paid.
I AM SELF-EMPLOYED TAXPAYER AND MY INCOME FOR THIS YEAR HAS DECREASED. AM I ALLOWED TO REDUCE THE PROVISIONAL TAX FOR THE CURRENT YEAR?
Yes, you can reduce the amount of provisional tax due for the current year by filling a PT reduction form which can be obtained from the Office of the Commissioner for Revenue. The PT demand will be adjusted and based on your declaration. However, if the Tax Statement for the year in question results in Provisional Tax not paid in full, the amount underpaid is subjected to a 1% interest per month or part thereof.
WHAT IS THE CLOSING DATE FOR THE SUBMISSION OF THE FS7 & FS3 DOCUMENTS?
The closing date for submission of annual reconciliation documents FS7 & FS3 is the 15th of February of the following year.
HOW ARE SINGLE PARENTS TO BE INCLUDED IN THE FS4 FORM?
On the FS4 form a single parent should mark box B2 and write in ink near it the words "single parent". To qualify for the married tax rates a single parent (unmarried, widow/er, separated) should satisfy the following conditions:
◦Should have maintained a child who was not over 16 years of age within the year. If the child was over that age and was receiving full-time instruction or was incapacitated by infirmity from maintaining himself the single parent qualifies just the same but the child should not receive income of more than €2,400 in his or her own right;
◦Should have been recognized by the Director of Social Security as the beneficiary of the Children’s allowance paid in respect of the child;
◦Should not have received financial assistance for the maintenance of the said child from the other parent of the child;
◦Should not have lived in the same house with the other parent of the child.
HOW CAN ONE FILL IN A COUPLE’S FS3s FOR THE YEAR IN WHICH THEY MARRIED?
A couple who gets married should decide upon who is going to be considered as the responsible spouse. The responsible spouse should have all the emoluments earned during the year of marriage in one single FS3 while the other spouse should inform his/her employer to issue two FS3 forms covering the pre- and post-marriage periods respectively.
HOW SHOULD ONE CALCULATE THE TAX OF A COUPLE THAT SEPARATED DURING THE YEAR AND HOW SHOULD THE FS3s BE DRAWN UP?
As from basis year 2009, in the case where a couple has separated, both spouses are required to register separately as a taxpayer with the Office of the Commissioner for Revenue. This may be affected by submitting the separation deed.
Each spouse will be responsible for filing his/her own Tax Return covering income earned from 1st January to 31st December. Each individual will be taxed as a single person and will be responsible to pay the relative tax on the income earned. Married rates will apply if the individual qualifies as a Single Parent.
HOW SHOULD ALIMONY PAID OUT DIRECTLY FROM A SALARY BE TREATED?
If the alimony is being paid to the spouse and not to the children, and as long as there is a public deed of personal separation or a decree by the Court, the employer may write to the Commissioner for Revenue and request a reduction in the FSS rate in terms of rule 6(2) of the FSS Regulations 1998. A copy of the separation contract must also be presented. This approval is generally granted on the condition that:
a. The alimony payment is made by the employer directly to the employee’s estranged spouse;
b. That the whole amount of emoluments including the alimony payment should be reported on the FS3 of the employee and that the employee should complete an Income Tax and Self Assessment Form requesting a deduction in respect of alimony in the said form.
HOW SHOULD CENTS BE ROUNDED UP?
Cents should be rounded up to the nearest euro. However in the case of part-time work the 15% tax on total annual income should always be rounded up to the next euro.
HOW SHOULD AN EMPLOYER TAX AN EMPLOYEE WHEN AN FS4 IS NOT FILLED IN?
In such cases the employer is bound by FSS Rules to deduct tax at the rate of 35% from the employee’s wage and remit the amount to the department.
HOW SHOULD DIRECTOR’S EMOLUMENTS BE TREATED FOR FSS PURPOSES?
Director’s emoluments should always be reported under the FSS in respective of the fact that his social security is paid on a self-employed basis.
WHO MAY QUALIFY FOR THE 15% WITHOLDING TAX ON PART-TIME INCOME?
Full-time employees, pensioners or full-time students may qualify for the deduction of 15% withholding tax on the income derived from part-time employment, provided the following conditions are satisfied:
a. Employment is registered with Jobsplus;
b. Work performed is less than 30 hours per week;
c. Remuneration to employee does not arise from the holding of an office in a board or tribunal appointed by the Government and to Members of Parliament and Local Councils;
d. Income is not being derived from fees and other similar payments made to members of the Board of Directors of companies or of boards of public corporations and;
e. If the employee is employed full time and also performs part-time employment, the respective employers must not form part of the same organization or group of companies.
In order to qualify, an individual must adhere to all conditions a, b, c, d and e. If an individual is married, even though that person only works part-time, he/she may benefit from the part-time rate, as long as the husband or wife has a full-time employment or is a pensioner or is a student/apprentice.
If these conditions are not satisfied, emoluments earned from part time employment will be added or considered as the Main Income and taxed accordingly. Whenever the part time provisions apply, the maximum amount of income brought to charge should not exceed €10,000. The part-time employment income over and above will be brought to charge as Main Income and must be declared in the tax return. This means that a maximum tax of €1,500 is incurred on the part time employment.
It is the employee’s responsibility to decide as to whether the 15% part time withholding tax is deducted or not.
Remuneration paid to police officers for performing extra duty work that is not part of the of the police officer’s normal duties and is not overtime, shall be considered as income from part-time work.
HOW CAN FSS TAX BE CALCULATED?
One may calculate the FSS by using the spreadsheet found on the Commissioner for Revenue website.
WHAT PROCEDURES AM I TO FOLLOW WHEN EMPLOYING PERSONNEL?
If you are employing personnel, you should:
◦Register as an employer with the Department;
◦Submit the FS4 forms for each employee on commencement of their employment;
◦Deduct from your employee’s emoluments any tax and Social Security Contributions (SSC) due;
◦Remit these deductions to the Commissioner for Revenue by the end of the month following that on which payment of emoluments was made. The payment is to be made by means of the FS5 form;
◦Submit an annual Statement of Earnings (FS3) of all your employees together with the Annual Reconciliation Statement (FS7) by the 15th February of the following year;
◦Inform the Department upon ceasing to be an employer (De-registration Form)
WHAT SHALL I DO WHEN I STOP EMPLOYING PERSONNEL?
If a person ceases to be an employer he is required to de-register the PE Number by:
◦Presenting FS3 and FS7 forms for the current year up to the date of cessation of being an employer;
◦Submit any outstanding FS3 and FS7 documents for previous years;
◦A nil FS7 has to be sent where no data is to be reported for any specific year
◦Pay any outstanding balances with regards to tax and social security contributions, both employer and employee/s;
◦Fill the de-registration form
IF A COMPANY DOESN’T PAY WAGES OR SALARIES AND THE DIRECTORS RECEIVE ONLY FRINGE BENEFITS, IS THERE ANY NEED FOR THE COMPANY TO BE REGISTERED AS AN EMPLOYER?
Yes. A company that provides fringe benefits only is required just the same to register as an employer and to send the necessary FSS forms to the department. The fringe benefit is considered as part of the emoluments that a director or an employee receives from the company.
CAN FSS PAYMENTS BE AFFECTED EVERY FOUR MONTHS, LIKE SELF-EMPLOYED, ESPECIALLY WHERE THERE ARE SMALL NUMBER OF EMPLOYEES?
No. According to the provisions of the FSS Regulations, FSS payments should be affected by not later than the end of the month that follows the month in which they have become due. For example, if an employer deducts FSS tax and SSC for January, one has to submit the remittance together with the FS5 form by not later than the end of February.
ONLINE SUBMISSION OF FSS DOCUMENTS:
HOW LONG DOES IT TAKE TO SUBMIT THE END OF YEAR FSS DOCUMENTS (FS7 & FS3s) ONLINE ?
The electronic process for the submission of the end of year FSS documents takes approximately 10 minutes to complete.
HOW LONG DOES IT TAKE TO SUBMIT AN FS4 ONLINE?
The electronic process for the submission of an FS4 takes approximately 10 minutes to complete.
HOW LONG DOES IT TAKE TO SUBMIT AN FS5 ONLINE?
The electronic process for the submission of the FS5 takes approximately 10 minutes to complete.
HOW LONG DOES IT TAKE FOR THE COMMISSIONER FOR REVENUE TO COMPLETE YOUR FSS SUBMISSION?
The process of vetting and processing of the submission takes a maximum period of 90 working days.
WHAT IS THE TAX INDEX OF FINANCIAL DATA (TIFD)?
TIFD stands for Tax Index of Financial Data and represents a listing of items commonly reported on balance sheets and income statements. The TIFD is a structured approach for the presentation of financial statement information that accompanies the tax return. It is a list or index, of balance sheet and income statement items that are used to create a unique financial statement combination.
The TIFD is a TAX index of financial statement information that is intended to regulate the reporting requirements for tax purposes. It provides a new way to collect financial information in a structured format that supports electronic filing. Having financial information in an ordered format allows the Office of the Commissioner for Revenue (CFR) to process returns more quickly and enhances the development of tax policies and legislation by the Ministry for Finance.
WHY WAS THE TIFD DEVELOPED?
Electronic lodgement has been on the agenda for a number of years. However, it could not be implemented due to the prevailing legal structure. The CFR announced its intention to introduce electronic filing during a seminar held on 24 February 2000. Later in the year a spreadsheet version of the 2000 tax return was developed and provided by CFR.
The outcome was very encouraging; more than half of the company tax returns filed were in the spreadsheet format. This meant that data processing was much smoother and the various validations incorporated within the spreadsheet helped to reduce mistakes in determining the tax liability.
The CFR developed the TIFD to standardise the preparation and presentation of financial statement information that supports electronic transmission.
HOW WAS THE TIFD DEVELOPED?
The CFR set up a project team to identify ways aimed at improving the internal processing system. The diversity of financial statement layouts encountered does in no way support electronic filing. A preliminary exercise, reviewing a number of financial statements filed with company tax returns, revealed that financial data was being presented in a multitude of formats.
The diversity of financial data presented, hinders data capture. Furthermore, certain data presented is very unclear, vague and subject to interpretation. This led the department to single out the most commonly used financial statement items, attaching a unique code number to each item.
WHO CAN USE THE TIFD?
The TIFD is designed to cater for the reporting needs of all persons defined in the Income Tax Act, that are required to file some form of financial statements with their tax return. However, the TIFD is only mandatory in the case of persons falling within the definition of a company with some exceptions.
The TIFD does not meet the reporting needs of Insurance Companies. These have their particular reporting requirements that are regulated by the Insurance Business Act. Trusts are also excluded in view of pending legislative changes. These categories should continue to submit a paper copy of the financial statements along with their tax return and prescribed attachments.
The TIFD is not required from non-resident companies that do not normally attach financial statements to their tax return. This applies ONLY to those foreign companies having no income arising in Malta that is chargeable under Article 4(1)(a) of the Income Tax Act [income from any trade or business...]. However, where such companies are registered for income tax-purposes they are still required to file their tax return and attachments relating to income arising in Malta [e.g. dividend warrants].
WHAT ARE THE TAX REPORTING REQUIREMENTS OF NON-TRADING COMPANIES?
In the case of non-trading companies, including companies in liquidation, the TIFD is still required. Use the TIFD to file balance sheet information if there is no income statement to file. However, all inactive companies that have some form of income, or incurred expenses during the financial year, must still file the income statement coded in TIFD.
WHEN WILL THE TIFD COME INTO FORCE?
The use of the TIFD is mandatory for company tax returns due to be filed on 30 September 2002 and later. You must use the TIFD whether you file electronically or a paper copy. If a company opts for a manual tax return, a paper copy of the financial statements coded in TIFD, must accompany it. [For transitory arrangements see Appendix IV.
WHY ARE COMPANIES FINANCIAL STATEMENTS TO BE SUBMITTED IN TIFD FORMAT FOR FINANCIAL YEARS ENDING DECEMBER 2001 AND LATER?
The CFR is committed to capture financial statement information from all companies in a format that supports electronic filing. To do so, the elements of the financial statements had to be encoded.
We designed the TIFD as an alternative means of submitting financial statement information. This means that it is a requirement that financial statement information be presented in TIFD format. Companies that do not comply with this requirement will have their return rejected and the CFR will follow up with a request for TIFD-formatted financial statement information.
IS THE CFR SHIFTING ON OTHERS, WORK THAT IT CURRENTLY DOES ITSELF?
Absolutely not! The TIFD is a tool to report balance sheet and income statement information in a uniform structure that allows the CFR to automate validation and processing.
The TIFD is only a part of a larger package within a platform establishing a number of electronic interactive services provided by the CFR for the benefit of its customers.
WHAT ARE THE BENEFITS THAT CAN BE REAPED FROM THESE NEW ARRANGEMENTS?
When the whole arrangement is in place it will provide time saving opportunities, faster and higher quality processing, reduced paper costs and real time electronic acknowledgements.
Accountants, auditors and tax practitioners will be able to query returns, have access to tax information and will receive prompt attention from the CFR as more and more information is provided online.
CFR will also benefit from the arrangement. Electronic filing will reduce the manual data capture. Automation will include a series of front-end validations that allows us to process data more quickly and accurately. This will reduce paper handling and resolve, at least in part, the archiving problems including storage costs
Taxpayers benefit because the CFR works more efficiently by employing technology to improve upon the services it already provides.
We want exactly the same information as before, but in a coded format. The financial data must satisfy all the requirements set by the Companies Act, 1995. You will continue to determine how to structure and present the audited accounts. TIFD codes are then matched and applied to items on balance sheets and income statements.
DOES THE TIFD RESULT IN AN INCREASE TO THE REPORTING REQUIREMENTS?
Generally, the reporting requirements are not increased; you report the same level of detail as you did before. You only need to select TIFD codes for the usual information contained in the financial statements that are filed with the income tax return.
The TIFD is a tool to collect the same financial information that is presently being filed. We want nothing more than we receive now, but no less detail. All that is required is the code rather than words, and the corresponding amount for each item currently reported in the audited financial statements.
In the new processing re-design we endeavoured to keep text data to a minimum. The directors' report, the audit report and the notes to the accounts are not immediately available with electronic filing. The CFR can still request a paper copy of the full set of audited accounts. It can also access these documents later on, when the annual audited accounts are provided to the Registrar of Companies.
The CFR is in no way compelling anyone to change, or to set up, a new chart of accounts. Everyone is free to use TIFD codes when setting up charts. However, the TIFD by itself may not meet all the charting requirements.
IF THE CFR WANTS ONLY THE SAME INFORMATION AS IS NOW BEING REPORTED, WHY ARE 500 ITEMS INCLUDED IN THE TIFD?
In designing the TIFD, we analysed a large sample of financial statements. Our goal was to provide companies with as much flexibility as possible, while still allowing us to receive and process financial statement information electronically.
The TIFD provides about 500 items to choose from. The level of granularity is primarily intended to provide an adequate number of items that cater for different circumstances and minimise reporting and allocation errors. It is expected that most companies will report between 40 and 80 items.
HAS THE CFR INFORMED COMPANIES ABOUT THE TIFD OR IS IT THE ACCOUNTANTS’ RESPONSIBILITY TO INFORM CLIENTS?
The CFR has informed companies about the TIFD in a circular and held a number of seminars on the subject. In addition, information about the TIFD will soon be available on our web site.
DOES THE TIFD IMPAIR THE PRESENT RESPONSABILITIES BETWEEN AUDITORS AND THEIR CLIENTS?
The TIFD does in no way impair the present responsibility relationship between directors and auditors. The same will apply for the electronic filing of returns.
Audited financial statements must still be prepared with the same level of detail as before. They must be approved and signed before the electronic transmission of the tax return and financial data. Specific questions within the tax return must be answered to confirm full compliance with the statutory procedures.
There will also be the necessary statutory safeguards that enable the Commissioner for Revenue to request within a short period of time, a signed set of audited financial statements to make the necessary verifications.
HOW IS THE TIFD STRUCTURED?
The TIFD consists of items that are included in the balance sheet and the income statement. It is divided into sections and sub-sections comprising blocks of financial data.
The item at the start of each block is bold written and represents the general term for descriptions of specific items included within the same block.
WHY ARE MANDATORY FIELDS INCLUDED IN THE TIFD?
Certain line items are required to validate financial statement information. These fields do not represent the minimum number of items that must be TIFD-coded and filed with the CFR. These mandatory fields must be included, along with all the other TIFD codes needed to represent a company's financial statements.
IF I USE A TIFD GENERIC CODE, WILL THE OFFICE OF THE COMMISSIONER FOR REVENUE CALL FOR MORE INFORMATION?
It is very unlikely that a company is requested more information on the basis of the TIFD codes selected. Cases are selected for further review based on a wide range of criteria, just as they are now. We will analyse data in relation to the financial information reported, and not the codes used.
WHAT IF ONE LINE ON MY FINANCIAL STATEMENT MATCHES MORE THAN ONE TIFD ITEM?
When you find more than one code for your items, you should select the code for the most significant item. If three or more TIFD items are combined on one line, you may prefer to use the appropriate generic code from the TIFD to report the amount.
WILL TIFD CODES CHANGE FROM YEAR TO YEAR?
No, the TIFD has been designed to be flexible. If additions are necessary, [e.g. new statutory disclosure requirements] these can be made to the index without changing the current codes.
The CFR will provide a spreadsheet(s) that include(s) the TIFD component. If you use an accounting software package, you can report your financial statement items in TIFD format by means of a translation table that you have to prepare. It is impossible for the CFR to support the whole range of accounting software packages in use. However, you can still prepare your return together with the financial statements using the spreadsheet(s) that will be provided by the CFR.
HOW DO I FILE THE NOTES TO THE FINANCIAL STATEMENTS WITH ELECTRONIC LODGEMENT?
The information that is normally disclosed by way of a note, is either:
◦included within the TIFD itself [e.g. comprehensive list of fixed assets]; or
◦through the extended questionnaire within the company tax return [e.g. whether there have been any changes in the accounting policies during the year, whether there were any contingent liabilities, etc.]; or
◦in the prescribed attachments to the tax return [e.g. proceeds on the disposal of assets will be reported on prescribed attachments for balancing statements].
WHAT ABOUT THE AUDIT REPORT?
The extended questionnaire within the tax return will ask whether the audit report has been prepared and whether it is qualified. If the audit report is qualified you will be required to state the reason for the qualification.
HOW DO I PRESENT THE NOTES IF I FILE A PAPER COPY OF THE RETURN AND FINANCIAL STATEMENTS?
If you still prefer to file the paper copy of the return, the accompanying financial statements must be TIFD coded including all notes explaining the balance sheet and income statement details.
The CFR is still offering the spreadsheet option to manual filers. However, it would be futile to file manually when such spreadsheets are resorted to.
WILL THERE BE ANY CHARGES TO THE PRESENT COMPANY TAX RETURN?
Yes, a new version of the company tax return, form TA2, together with prescribed attachments, has been prepared. The new return has been adjusted to cater for the legislative changes, mainly brought about by the Business Promotion Act. Another slight adjustment relates to the reconciliation of profit per financial statements to chargeable income [previously under part 3]. This has been replaced by a similar exercise that will now precede the tax computation for the sake of continuity and data flow.
The major innovative feature of this year's return is the extended yes or no questionnaire dealing with the preparation and the audit of the financial statements. With electronic filing, the directors' report, the audit report and the notes to the accounts will not be immediately available to the department. The CFR is still interested in all the financial statement information.
Otherwise, the new company tax return will retain the present structure and format with 8 pages and 7 parts.
WHAT ATE THE PRESCRIBED ATTACHMENTS AND WHAT PUPOSE DO THEY SERVE?
All sorts of tax schedules, statements and computations are attached to company returns, the most common being the capital allowance schedules. The information contained in these documents is vital to the department, but the different layouts and the level of content presented, creates plenty of problems during the data capture stage.
This state of affairs, if left unchecked, would continue to slow down processing and will ultimately obstruct the electronic transmission of tax returns. To resolve this problem the department is preparing an extensive list of prescribed attachments to the tax return in order to get all the tax relevant information in a standard format.
WHERE CAN I GET MORE INFORMATION ON THE TIFD?
You can get printed copies of the guide from your Company Taxpayer Services Office Block 1, Floriana.
Rental Income
TO QUALIFY FOR THE 15% TAX RATE ON RENTAL INCOME, DOES THE PROPERTY HAVE TO BE RENTED FOR RESIDENTIAL OR COMMERCIAL PURPOSES?
The 15% tax on rental income applies both to residential (as from 1st January 2014) and commercial property (as from 1st January 2016), but excludes rent from related parties. [A body of persons is related to an individual if it is owned or controlled, directly or indirectly, as to more than twenty-five percent by that individual; and two bodies of persons are related if they are owned or controlled, directly or indirectly, as to more than twenty-five percent by the same persons].
IS THE 15% FLAT RATE A FINAL TAX AND ON WHICH AMOUNT IS IT PAID?
Yes. The 15% flat rate is final and no set-off or refund shall apply. The 15% is to be paid on the gross rental income.
DOES THIS RATE OF TAX APPLY ALSO TO NON-RESIDENTS?
Yes. This beneficial rate applies both to resident and non-resident persons.
DOES THIS RATE APPLY TO COMPANIES? IF YES WHERE IS SUCH INCOME TO BE ALLOCATED?
This rate applies also to companies. Every company resident in Malta has to allocate the distributable profits resulting from such income and on which 15% tax has been paid, to the final tax account.
IF I EXERCISE THIS OPTION, DO I HAVE TO DECLARE THIS RENTAL INCOME IN MY TAX RETURN?
No, if you pay the 15% tax on the gross rental income, you are not required to declare such income in your tax return given that you are an individual.
IS THE 15% OPTIONAL OR MANDATORY?
The 15% is optional. One may choose to declare the net rental income in his tax return and be charged with the normal rates rather than with the 15% flat rate. However, once such option is exercised it applies to the total rental income received in the said year from all the tenements let out by such person (subject that the tenements qualify for this rate).
FROM WHICH DATE DOES THIS RATE APPLY?
This rate applies from 1st January 2014 for residential property, and from 1st January 2016 for commercial property.
IF I FAILED TO DECLARE RENTAL INCOME DERIVED FROM RESIDENTIAL PROPERTIES OR GARAGE IN THE PAST YEARS, CAN I BENEFIT FROM THE 15% RATE OF TAX ON THIS PAST UNDECLARED RENTAL INCOME?
No. The option to benefit from such rate was permissible only up to 30 June 2015. Therefore, such undeclared income has to be declared, and is now subject to tax under the normal progressive rates.
WITH REGARDS TO COMPANIES, WHAT IS THE PROCEDURE IN CASE OF UNDECLARED RENTAL INCOME?
If a company was in receipt of rental income in past years which was not declared for tax purposes, an AF2 has to be submitted and tax is charged at 35%.
ARE THERE ANY PRESCRIBED FORMS THAT I NEED TO SUBMIT TO PAY THE 15% TAX ON RENTAL INCOME AND WHEN DO I NEED TO SUBMIT THESE FORMS?
Form TA24 together with the payment has to be submitted by not later than the 30th April of the year following the relevant year.
ARE THERE ANY PENALTIES FOR NON-DECLARATION OF RENTAL INCOME?
Irrespective of whether the option to have the rental income taxed at the flat rate of 15% is exercised or not, any undeclared rental income shall be subject to tax at the rate of 35% on the gross rental income, in addition to interest and additional tax payable under the Income Tax Acts, following an investigation carried out by tax authorities.
ONCE A PERSON EXERCISE THE OPTION TO HAVE THE RENTAL INCOME TAXED AT THE RATE OF 15% IS THIS CHOICE IRREVOCABLE, OR COULD THAT PERSON DECIDE TO DECLARE THE RENTAL INCOME IN THE TAX RETURN, AND CLAIM THE 15% TAX BACK?
The 15% tax is a final tax, and cannot be claimed back.
SHOULD A PERSON DECIDE TO TAKE UP THE OPTION OF HAVING THE RENTAL INCOME TAXED AT 15% IS THAT PERSON BOUND TO THE 15% FINAL TAX REGIME FOREVER, OR COULD THAT PERSON OPT OUT OF THIS REGIME?
The choice whether to exercise the option or not is made annually. Therefore a person may have the rental income taxed at 15% one year, and the following year decides to declare the income in the tax return and have it taxed at the normal, applicable tax rates.
Power to Request Information
WHO IS A DESIGNATED PERSON?
A designated person is any person who may be acting as mandatory, nominee, trustee, agent, depository, custodian, under a contract of work or otherwise, irrespective of whether such person is in actual possession of authorisations or is exempt from requiring such authorisations under any law or is acting in breach of law when holding such property without authorisation required to do so by applicable law.
A designated person includes any of the following:
- a person who is in possession of a valid licence issued in terms of the Banking Act; or
- a person who is licensed in terms of the Investment Services Act; or
- a person who is authorized in terms of the Insurance Business Act or enrolled in the Brokers List under the Insurance Brokers and Other Intermediaries Act; or
- a person who is authorised under the Trusts and Trustees Act to act as a trustee or as an administrator of any private foundation; or
- advocates, notaries, legal procurators, accountants, auditors and other persons holding warrants to exercise a profession
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WHEN CAN THE CFR REQUEST INFORMATION FROM DEISIGNATED PERSONS?
The CFR may request information from designated persons if:
- The taxpayer has been informed that he will be audited, and
- A request for information has been made directly to him in accordance with the provisions of sub-articles (1) and (2) of article 14 of the Income Tax Management Act, and
- After considering available information and explanations presented by the taxpayer there exist reasonable grounds to suspect that tax has been, is, or may be evaded.
WHAT CONSTITUTES REASONABLE GROUNDS OF SUSPICION?
Reasonable grounds on the part of the CFR to suspect that tax has been, is or may be evaded by any person shall include but not be limited to the following:
- a refusal by that person to provide the CFR with any documentation or information as may have been requested from him by the CFR in relation to any property which he owns, possesses, or holds at that time through another person including designated persons, or any property previously owned, possessed or held and subsequently disposed of under any title whatsoever by such person at an earlier date;
- where a notice in terms of article 29 of the Income Tax Management Act, is not made as the taxpayer could not be found or for other reasons attributable to the taxpayer, and in accordance with the said article 29, the CFR publishes a notice in the Gazette and in one or more daily newspapers stating that a notice has been made and inviting the taxpayer to call for it at the Office of the Commissioner for Revenue;
- where, after being requested by the CFR by means of a notice in writing, such person fails to produce without any reasonable excuse any books, records, documents, accounts, electronic data and a correct statement referred to in article 14(2) of the Income Tax Management Act within thirty days from the date of service of such notice;
- such person gives any false answer, whether verbally or in writing, to any question or request for information asked or made in accordance with the provisions of the Income Tax Acts;
- such person prepares or maintains any false books of account or other records or falsifies any books of account or records.
WHAT INFORMATION SHOULD BE SUBMITTED BY A DESIGNATED PERSON?
A designated person who receives such notice is required to provide the CFR, within the time indicated in such notice not being less than thirty days from the date of service of such notice, with:
- all such information and documentation which he may have relating to property of any kind or description, transferred or delivered to him by the taxpayer, and
- owned, possessed, or held by the designated person under any title on behalf of or for the benefit of the taxpayer, on the date of the said notice or during the period specified in such notice not commencing earlier than six years from the date of such notice, and
- any property transferred or delivered to the designated person and is no longer held by the designated person or has been converted into a different form of property or has increased or decreased in value or extent or has been transferred to another designated person.
The term "property" means property of any kind or description, whether movable or immovable, personal or real, and wherever situated, and in relation to rights and interests whether vested, contingent, voidable or future, and including any money, investments, and amounts in savings, loan and other bank accounts (whether fixed, overdraft, current, deposit, or otherwise, and whether business or private accounts);
IS THERE ANY INFORMATION WHICH A DESIGNATED PERSON HAS NO OBLIGATION TO PROVIDE?
The designated person shall not be bound to provide information to the CFR in respect of:
- any beneficiaries, (other than the person being investigated i.e. in respect of which the notice has been issued), for whose benefit the property may be held or the terms and conditions under which it is so held.
- any property transferred or delivered to the designated person held on a temporary basis or as a simple administrator for the purpose of a transaction and has been returned to the person who is being investigated.
ARE DESIGNATED PERSONS EXONORATED FROM CONFIDENTIALITY AND PROFESSIONAL SECRECY OBLIGATIONS?
Any designated person who receives such notice shall provide the CFR with the information requested in the notice and this notwithstanding anything to the contrary in the Income Tax Acts, any provision of the Professional Secrecy Act, any obligation of secrecy or confidentiality, or to any other restriction relating to the disclosure of information whether arising from a provision of law or any agreement or other arrangement.
WHAT ARE THE LIMITATIONS ON THE USE OF INFORMATION OBTAINED BY THE CFR?
The CFR shall keep confidential any information provided to him by the designated person and shall not disclose such information to any other person except where the CFR is bound at law to effect such disclosure or where he requires to use such information in the context of proceedings under this Act.
Any information obtained by the CFR shall be used by him solely for the purpose of the investigation being carried out by the CFR as to whether tax has been, is, or may be evaded by the relevant person being investigated and, or any related proceedings under this Act.
WHAT KIND OF INFORMATION WOULD THE CFR REQUIRE?
The CFR shall specify in a notice issued under this article what information he requires and whether with reference to the property held on the date of the notice and/or at any point during a period of time (not commencing earlier than six years from the date of such notice).
WHAT HAPPENS IF THE DESIGNATED PERSON HAS NO INFORMATION TO REPORT?
If the designated person in receipt of a notice:
- has not held any property which was transferred or delivered (whether directly or indirectly through a transaction or a number of transactions which the designated person is aware of) to the designated person or vested in such designated person by the person in respect of whom notice has been given by the CFR to the designated person in terms of sub-article 3(a) of this article; or
- holds or has held the afore-said property on a temporary basis or as a simple administrator; or
- has returned the afore-said property to the person in respect of whom notice has been given by the CFR to the designated person in terms of sub-article 3(a) of this article;
he shall inform the CFR accordingly and shall have no further obligations in this regard unless the CFR seeks further information specifically on such circumstances.
WILL THE CFR INFORM THE TAXPAYER UNDER AUDIT OF SUCH NOTICE?
Where a notice has been given by the CFR to a designated person he shall, within fifteen days of issue of such notice, inform by a further notice in writing the person in respect of whom such notice was given, that he has issued a notice under this article.
CAN A DESIGNATED PERSON INFORM HIS CUSTOMER OF SUCH NOTICE?
Any designated person in receipt of any such notice may inform his customer, principal or other person who may have delivered, settled, donated or otherwise transferred property to the designated person of the receipt of such notice and his response thereto.
WHAT HAPPENS IN CASE OF NON-COMPLIANCE BY DESIGNATED PERSONS?
The CFR may report any act or failure by the designated person to the relevant regulatory authority which issued a licence or authorization to such designated person.
Where a designated person gives any false, misleading or incorrect information in relation to a notice issued under this sub-article he shall be guilty of an offence and shall, on conviction, be liable to a fine of not less than ten thousand euro (10,000) and not exceeding twenty-three thousand euro (23,000 )