From 1 January 2010, the amended Law on Personal Income Tax imposes a tax on income earned by individuals from capital.
With our customers’ convenience in mind, Swedbank will withhold the personal income tax on interest income already starting from this 1 January.
Our depositors won’t need to pay the tax themselves or file any tax returns with the State Revenue Service (except when declaring liability for taxation is required under the Law on Personal Income Tax)
Imposition of tax explained
Under the amended Law on Personal Income Tax, a number of our banking services is subject to tax on income from capital, therefore we would like to offer you an explanation of how the tax is levied and collected.
Term Deposit (incl. holiday deposits and short-term deposits)
- The tax rate is 10 % of interest income earned.
- The law requires that the tax be withheld on the day of earning the income i.e. when the interest is paid out by the bank, starting with 1 Jan 2010 irrespective of the date of the contract.
- Swedbank will withhold the tax automatically upon payout of interest upon deposit maturity and will transfer it to the government budget.
Term deposit with interest paid monthly
- The tax rate is 10 % of interest income earned.
- The law requires that the tax be withheld on the day of earning the income i.e. when the interest is paid out by the bank, starting with 1 Jan 2010.
- Swedbank will withhold the tax automatically upon payout of interest – i.e. once a month – and will transfer it to the government budget.
Dynamic Deposit
- The tax rate is 10 % of interest income earned.
- The law requires that the tax be withheld on the day of earning the income i.e. when the interest is paid out by the bank, starting with 1 Jan 2010.
- Swedbank will withhold the tax automatically upon payout of interest – i.e. upon deposit maturity or at any other time when interest is paid – and will transfer it to the government budget.
Savings Account
- The tax rate is 10 % of interest income earned.
- The law requires that the tax be withheld on the day of earning the income i.e. when the interest is paid out by the bank, starting with 1 Jan 2010.
- Swedbank will withhold the tax automatically upon payout of interest – i.e. once a quarter or at any other time when funds are paid out – and will transfer it to the government budget.
Maturity Savings Account
- The tax rate is 10 % of interest income earned.
- The law requires that the tax be withheld on the day of earning the income i.e. when the interest is paid out by the bank, starting with 1 Jan 2010.
- Swedbank will withhold the tax automatically upon payout of interest – i.e. upon maturity – and will transfer it to the government budget.
Coming of Age Savings Account
- The tax rate is 10 % of interest income earned.
- The law requires that the tax be withheld on the day of earning the income i.e. when the interest is paid out by the bank, starting with 1 Jan 2010.
- Swedbank will withhold the tax automatically upon payout of interest – i.e. once a year – and will transfer it to the government budget.
Dividends
- The tax rate is 10 %.
- The law requires that the tax be withheld from dividends for publicly traded stock on the day of earning the income i.e. when the dividend is paid out, starting with 1 Jan 2010.
- Tax on such dividends will be withheld automatically by Swedbank upon transfer of dividends to its customers.
- Responsibility for withholding tax from other dividends which are paid out by a Latvian company, will lie with that company, while payment of the tax on dividends which are paid out by a foreign company will be the responsibility of the recipient of the dividends.
Life Insurance with Savings (Endowment Policies)
- The tax rate is 10 % of the income.
- Income from life insurance policies with savings arises when the difference between cash surrender value (in case of early termination of insurance contract) or the sum paid upon maturity of the insurance contract and the insurance premiums paid is positive.
- The tax will automatically be withheld by the insurer on the day of earning the income i.e. when the interest is paid out, and transferred to the government budget, starting with 1 Jan 2010.
Private pension funds
- Law states that from 1 Jan 2010 income earned from investment of contributions to private pension funds is also taxable.
- The tax rate is 10 %.
- The tax will be withheld automatically by Swedbank Atklātais Pensiju Fonds upon disbursement of the supplementary pension capital.
Investment Funds
- The law requires that capital gains i.e. income from disposal of such capital assets as investment fund units, be taxed.
- The tax rate is 15 %.
- The capital gain is determined as a difference between the disposal (e.g. selling) price and acquisition value of the capital asset. The capital asset acquisition value also includes the cost of acquiring and holding securities, as well as other expenses related to acquisition of the capital asset as laid down by law.
- In case of disposal of investment fund units acquired on or before 31 December 2009, the taxable income is determined by deducting the unit acquisition value from the unit disposal value, divided by the number of months when the units were held and multiplying the number of months passed from 1 Jan 2010 to the month of sale (including).
Example:
- In April 2009, a customer acquires fund units for LVL 1,000 (including LVL 15 unit purchase fee).
- In Feb 2010, the fund units are sold for LVL 1,500.
- The unit holding costs were LVL 7 during this period.
- The capital gains tax payable by the customer is as follows:
(1 500 – 1000 – 15 – 7) / 10 (the number of months when the units owned by the customer) * 2 (the number of months during which the units were owned by the customer after 01.01.2010) * 15% = 478 / 10* 2*15 % = LVL 14.34.
- The capital gains will be calculated, tax liability will be declared and the tax will be paid by customers themselves. The tax return concerning capital gains must be filed with the State Revenue Service:
- on or before 15th date of the following month if the monthly income exceeds LVL 500
- on or before 15th date of the first month in following quarter if the monthly income is below LVL 500.
Income from disposal of equities and debt securities
From 1 Jan 2010, the tax is also payable on income earned by an individual from disposal of such capital assets as equity and debt securities. In law, such income is referred to as capital gains and represents a type of income from capital. In light of the fact that equities and debt securities are some of the most common types of securities in customer transactions, we have also included information on taxation of capital gains from those securities:
- The rate of tax on capital gains is 15 %.
- The capital gain is determined as a difference between the disposal (e.g. selling) price and acquisition value of the capital asset (equity or debt security). The capital asset acquisition value also includes the cost of acquiring and holding the capital asset, as well as other expenses related to acquisition of the capital asset as laid down by law.
- The day of earning income is the day when the individual (the taxpayer) receives money.
- Income earned and loss suffered during a taxation year from disposal of capital assets (if several capital assets have been disposed of during the taxation year) may be summed up. If capital gain from disposal of one capital asset is negative, but from disposal of other capital asset – positive, then the incurred loss during the taxation year may be set off against the positive capital gain; if the calculated capital gain (if there has been only one capital asset disposal transaction) or the sum of capital asset disposal income and loss is negative, then it is disregarded for tax calculation purposes.
- If the capital gain calculated or the sum of it is negative for the taxation year, then the incurred loss may not be set against a capital gain in the following taxation years or against other types of income in the taxation year.
- The capital gains will be calculated, tax liability will be declared and the tax will be paid by customers themselves. The tax return concerning capital gains must be filed with the State Revenue Service:
- on or before 15th date of the following month if the monthly income exceeds LVL 500
- on or before 15th date of the first month in following quarter if the monthly income is greater than LVL 100 and below LVL 500.
- on or before 15th date of the january in following year if the monthly income is below LVL 100.
Interest income from debt securities
- Interest earned on debt instruments (e.g. coupon payments) also represents income liable to personal income tax since 1 Jan 2010.
- The tax rate is 10 %.
- A tax exemption provided for in the law is income from Latvian or other European Union members state’s or European Economic Area member state’s government or municipal debentures. Individuals are not liable to pay income tax on such income in Latvia.
- Responsibility for withholding the income tax from income paid lies with the payer of income. However, in cases when interest income is paid in a foreign country, it may be impossible to withhold the tax from such interest income, and then it will be the responsibility of the recipient of income to pay the applicable tax.
* The explanations provided here are for information only, and Swedbank cannot be held liable for any expenses or loss incurred should explanations by the State Revenue Service or other competent authority differ from those provided here.For complete information on taxation of incomes, please seek advice from the State Revenue Service or your tax consultants.
