A new international initiative means it is more important than ever to make sure your are correctly declaring your income and paying tax in the right country.
A new international initiative means it is more important than ever to make sure you are correctly declaring your income and paying tax in the right country.
From January 2016, financial institutions in over 50 countries around the world began collecting information on their clients and their accounts. This data will be passed on the clients’ country of residence in 2017. Cross-border taxation can get complex for expatriates, and it is important to make sure you are correctly declaring your income and paying tax in the right country.
This exchange of information will be repeated every year, with a further 47 countries starting to collect data in 2017, ready to exchange it in 2018. It is carried out under the Common Reporting Standard (CRS), developed by the Organisation for Economic Co-operation and Development (OECD).
The loss of financial privacy affects us all. If we live in one country and have assets in another, our information will be shared between countries. Our local tax authority will automatically receive information on the financial assets we own overseas, without asking for it, and regardless of whether they have any questions about our tax affairs.
If you live in Malta and have, for example, investments in the Isle of Man, or bank accounts in Switzerland, or pension funds in the UK, the Maltese tax authorities will receive information on these assets.
Information to be exchanged
The information being shared about the financial assets you own outside your country of residence includes personal data such as your name and address, country of tax residence and tax identification number. You have probably received requests from banks and financial institutions to confirm these details.
The information to be reported about your accounts includes the investment income you earned over the year, such as interest, dividends, income from certain insurance contracts, annuities etc. Account balances are also reported, and gross proceeds from the sale of financial assets.
The financial institutions that need to report include banks, custodians, certain investment entities such as investment funds, certain insurance companies, trusts and foundations.
The “early adopter” jurisdictions will make the first exchange by September 2017, in relation to 2016 data. This includes Malta, the UK, most EU countries, Channel Islands, Isle of Man and Gibraltar, UK offshore territories and South Africa.
The countries starting the following year include Switzerland, Monaco, Singapore, Hong Kong, United Arab Emirates, Panama, Australia and Canada.
The US exchanges information globally under its FATCA initiative – the Foreign Account Tax Compliance Act.
What does this mean for you?
When local tax offices receive this information they will be able to verify whether the taxpayer has accurately reported their income on their tax returns.
Cross-border taxation is complex. If you spend time in more than one country it may be hard to determine where you should be paying tax. If you live in Malta but have assets and receive income abroad, you need to know where you should be declaring them and where tax is due. You have to follow tax residency rules and double taxation treaties.
Generally, tax residents are liable to Maltese tax on their worldwide income and gains. This includes most income which is also taxed elsewhere.
Malta offers various residency programmes to foreign nationals which may exempt you from tax on income not arising in or not remitted to Malta. You need to be clear on what your tax obligations are depending on your residency status.
Another aspect to consider is that if you have many different offshore bank accounts, investment products etc, each one will be sharing information with your local tax authority. For peace of mind you could group as many assets as possible into one arrangement, so that there is much less information being passed around, and it is easier to follow what is being exchanged about you.
Exchange of information does not mean that we do not have the right to structure our assets in the most tax efficient way, but we have to ensure we only use arrangements which are compliant in Malta. There are structures which can be very effective, but take specialist advice to make sure you get it right.
Any questions? Ask our financial advisers for help
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.