As we are preparing to launch asset-backed securities on the TWINO platform, we would like to inform you about changes regarding taxation.

So far, by investing into loans via assignment agreements, investors received gross income and were obliged to pay the applicable income tax themselves in their country of tax residence.

However, when it comes to investments in regulated financial instruments (like our Securities), licensed investment brokerages are required by law to withhold income tax from individuals.

This means that TWINO will be withholding tax from the income you receive from investments in Securities.

The standard withholding tax rate in Latvia for interest payments to non-residents is 20%. However, you can reduce the tax rate by providing us with a tax residence certificate if there is a double tax treaty between your country and Latvia, simply by uploading it on the page “My Profile”. While you are at it, please also make sure that your address is up-to-date and includes street name, city, and postal code which is necessary for correct reporting.

If you have already uploaded a tax residence certificate this year, it is not necessary to upload it again – just email us and let us know.

As a reminder, we, together with our industry, have been in active discussions with Latvian authorities to decrease the withholding tax rate to as low as 5% without providing a certificate of tax residence. However, the legislation has not been adopted yet, so until then it is necessary to provide a tax residence certificate if you would like to reduce your withholding tax rate.

FAQ

What is a withholding tax (WHT)?
It is a tax that is withheld by the payer of the interest, if the recipient is a non-resident in Latvia. WHT is present in many countries and generally applies to payment to non-residents.

What is the standard WHT rate in Latvia?
20% for interest payments.

How does WHT work in practice?
Whenever TWINO pays interest to your account, we will be withholding 20% (or less – see below about “reduced WHT” and “DTTs”) from the amount that has been paid out. E.g., if you receive an interest payment of EUR 100, we will automatically deduct EUR 20 from your account.

How will this affect my return?
On one hand, you would have to pay the tax in your home country anyway. The amount that will be withheld by TWINO in Latvia can be deducted from tax paid in your home country based on the tax treaty between Latvia and your home country. However, due to differences in timing and frequency of deduction (annual vs more frequent), your return may be affected when compounding is considered.

What is a reduced WHT rate?
Many countries have entered tax treaties – these are bilateral agreements to prevent double taxation (and non-taxation) of payments between those countries (DTTs). Typically, DTTs provide an option to apply a reduced WHT rate (5%/10%/15% depending on the particular DTT) compared to the standard WHT rate of 20%. The exact rate is defined within the particular DTT.

What should I do to apply the reduced WHT rate in line with the DTT?
You should submit a tax residence certificate to TWINO by uploading it under “My Profile”.

What requirements should the tax residence certificate meet?
The certificate of tax residence should meet the following criteria:

• The certificate is in English (or is accompanied with a translation).
• The certificate contains your name, surname, personal code (registration number).
• The certificate contains confirmation by the tax authority (that grants the certificate) that you are a tax resident in your home country and, thus, eligible to benefit from the DTT.
• Taxation year for which the certificate is granted.

When and how often should the certificate be submitted?
The certificate should be submitted each year as soon as possible, as the reduced tax rate will be applied on the next day after your certificate has been processed. Otherwise, you will not be able to benefit from the reduced WHT rate and the standard rate will be applied.

What if I am a tax resident of Latvia?
The standard tax rate of 20% will be automatically withheld from your income, and your tax liabilities will be covered. You will no longer have to declare the income yourself.