Last chance

Q I have read various articles (including that from yourself) on the present investment registration scheme that closes next week. I am still confused with comments made regarding the implications if one does not register the investments. My interpretation was that the Channel Islands, for example, would deduct tax at source so why should an investor consider paying an additional 5% registration penalty when tax will be deducted at source anyway?

A The present registration scheme comes to a close on Thursday. There has been a lot of hype this time around as it coincides with the implementation of the EU Savings Tax Directive on July 1.

The difference between this and previous registration exercises is that, while in the past, investors could still 'hide' their money abroad, from July 1 this will no longer be possible for investors holding bank deposits and similar instruments in their own name in another EU country.

If one holds, for example, a bank account in England, then there is no doubt whatsoever that these funds must be registered as the Maltese authorities will be notified of interest earned on the account post July 1.

The twist comes, however, with deposits, etc., held in certain offshore centres, such as the Channel Islands and Isle of Man, whereby account details will remain confidential, at least for a transitional period.

In return for this confidentiality, a withholding tax will apply, starting at 15%. You therefore have a point in questioning the "need to register a Channel Islands deposit" when it will remain confidential.

This is where you must then observe the income tax regulations, which state that Maltese citizens are taxed on their worldwide income. You are therefore obliged to disclose foreign interest earned.

If you follow these rules and declare foreign income earned, then failure to pay the 5% registration tax before June 16 will no doubt end you in much deeper trouble. The government has repeatedly encouraged investors to take advantage of the scheme.

One final point worth sharing is on the types of investments and savings included under the directive as much confusion still exists as to what vehicles are exempt. The most common exemptions apply to companies, trusts and life assurance-based products.

This is because the directive is very clearly aimed at tax avoidance by individuals and not corporate entities. The most interesting one is however with life assurance-based products as very sophisticated vehicles have been developed whereby interest producing investments such as cash deposits and bonds can be bought via a life assurance company product whereby any withdrawals from the investment wrapper are exempt from the EU Savings Tax Directive.

Such sophistication is not surprising bearing in mind the investors wish to avoid all forms of tax!

Mark Hollingsworth is the director of Hollingsworth International Financial Services - licensed by the MFSA to provide investment services under the Investment Services Act 1994 (IS/32457). Address any financial questions to: Mark Hollingsworth, c/o The Sunday Times, PO Box 328, Valletta CMR 01. Alternatively, he can be contacted on 2131-6298/9984-2614 (office hours) or e-mail mh@hollingsworth-int.com.

Past performance is no guide to the future and, except where amounts are guaranteed, the price of your investments (and the currency in which it is denominated) may fall as well as rise. Your personal tax situation will depend on residence. Always consult a professional adviser. This article does not intend to give investment advice and its contents should not be construed as such. Readers are encouraged to seek professional advice on their personal financial situation.