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Nordea guarantees automatic withholding of tax from interest on deposits

By Editor. 14.01.2010

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  Amendments to the law „On personal income tax” came into force on 1 January 2010 providing for 10% income tax to be withheld by banks from interest on deposits and disbursement of dividends.

Amendments to the law have supplemented the list of taxable income. Interest on deposits, dividends, likewise earnings from investments in the third pillar pension plan and life insurance agreements with accumulations qualify as capital income liable to 10% income tax and the payer of such income has to withhold the tax upon disbursement of the respective amount.

In practice for Nordea customers it means that upon expiry of the term of the term deposit the interest on the deposit will be disbursed to the customer with already automatically deducted income tax of 10%.The customers will see in their account statements the total interest income and the tax amount transferred to the state budget in lats. For example, if the customer has placed a term deposit a year ago for the total amount of LVL 1000 for the annual interest of 10%, the tax will be deducted only from the gained profit, i.e. 10% from 100 lats i.e. 10 lats. Consequently the customer will not receive 1100 lats as it were before introduction of the above mentioned amendments to the law, but 1090 lats instead.

 
   
Head of Nordea retail banking Jana Strogonova told: „Tax on capital income is nothing new in the world and in many EU countries it is considerably higher than in Latvia, e.g. in Denmark it amounts even up to 59% from the gained income. Although there have been a number of uncertainties during elaboration and implementation of the law, currently the most important issue is to ensure that payment of this tax creates no encumbrances to Nordea customers. Therefore, Nordea guarantees for its customers automatic withholding of this tax and transfer into the state budget”.


Moreover, for those customers that have invested their funds in various capital assets (shares, securities etc.) the new amendments impose the obligation to independently calculate the profit and pay the tax on capital increase from any capital asset sale transaction. Namely, upon sale of one or several capital assets the customer has to calculate the total amount (profit or losses) expressed as the difference between the income from sale and acquisition costs. In case such sale transaction has resulted in profit and the acquisition costs are not included in the operating costs of the customer, a capital income statement is to be submitted to the State Revenue Service and a tax on capital increase in the amount of 15% is to be transferred to the state budget. The amendments foresee more favorable terms for customers that have made investments in investment funds before 2010 – it is possible to receive tax refund in the amount of the personal income tax payroll tax rate till 2013 if the customer is the holder of the shares of the fund for at least 5 years. Besides, what concerns profit from sale in such cases, the tax on capital income will be applied only for the time period starting with 2010, pro rata the period after 1 January 2010 to the total investment period.

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