What Is Meant by Tax on Deposits
The expression “tax on deposits” is not sufficient to determine a tax liability. In accounting, it is necessary to distinguish between the amount placed in a bank deposit and returned by the bank and the interest accrued by the bank. For further analysis, the accountant needs the terms of the agreement, information about the depositor, the accrual period, and the bank’s documents relating to the transaction.
The accounting procedure cannot be determined in the same way for all depositors. The category of the income recipient, their tax status, and the nature of the payment are relevant. An organization must also reconcile the bank documents with its accounting and tax records.
Article 345 of the Tax Code regulates the calculation of corporate income tax but does not establish a special regime for every type of bank deposit. Therefore, the accountant should not determine the tax implications based solely on the name of the banking product. First, it is necessary to establish which amount is recorded in the bank documents and which transaction it relates to.
How an Accountant Should Determine the Accounting Procedure
It is convenient to begin the review with the documents and transaction details. The bank deposit agreement, bank statement, document confirming the accrual of interest, and information about the payment recipient will be required. If the deposit belongs to an organization, the accrued amount should be reconciled with the accounting registers and the data used to calculate corporate income tax.
The practical procedure is as follows:
- Separate the amount of the deposit placed or returned from the accrued interest.
- Establish who owns the deposit and who is the recipient of the payment.
- Check the period for which the bank accrued the interest.
- Reconcile the purpose and amount of the transaction with the agreement and the bank statement.
- Check whether the bank documents indicate tax withheld at the source of payment.
- For an organization, reconcile the withheld amount with the tax registers.
- Retain the documents confirming the accrual and withholding of tax.
For organizations, Article 345 of the Tax Code establishes the general procedure for calculating corporate income tax. The tax on taxable income for each prescribed type of activity is determined as the product of the taxable income used to calculate the tax and the applicable rate. Taxable income is calculated taking into account the reductions provided for by the Code, as well as losses carried forward or offset (Article 345 of the Tax Code of the RK).
When calculating the total amount of corporate income tax, the taxable income of controlled foreign companies and permanent establishments of controlled foreign companies is also taken into account. Amounts creditable under the rules of the Code and corporate income tax withheld at the source of payment during the tax period are deducted from the calculated amount, provided that documents confirming the withholding are available. In addition, the article provides for a reduction by tax withheld at the source of payment and carried forward from previous tax periods in accordance with the established procedure (Article 345 of the Tax Code of the RK).
Thus, for an organization, a bank document confirming tax withholding is relevant when calculating corporate income tax. The organization’s internal calculation alone is insufficient for such a reduction: Article 345 expressly links it to the availability of supporting documents (Article 345 of the Tax Code of the RK).
At the same time, Article 345 does not determine the composition of income under a specific bank deposit agreement and does not establish a separate rate for interest under that agreement. Its provisions should be applied after the transaction has been recorded in the accounts and the taxable income indicators have been determined.
Tax on Deposits for Non-Residents
When making a payment related to a non-resident’s deposit, the accountant must separately record the recipient’s status and the nature of the transaction. The name of the agreement alone does not make it possible to draw a conclusion about the rate, the tax withholding procedure, or entitlement to apply the provisions of an international treaty.
Article 345 concerns the calculation of corporate income tax and does not establish the rates of income tax withheld at the source of payment on non-resident income. Therefore, it cannot be used as a basis for selecting the rate applicable to interest paid to a non-resident.
It is advisable to record the following information derived from the agreement and bank documents in the working register for a transaction with a non-resident:
- the recipient’s name and status;
- the country of their registration or tax residence;
- the type of payment under the agreement;
- the interest accrual period;
- the amount of accrued interest;
- the amount actually transferred to the recipient;
- the amount of tax indicated by the bank or another payer;
- the details of documents confirming the accrual and withholding.
Such a register makes it possible to reconcile the contractual terms, the bank statement, and the tax records. It also helps avoid combining the deposit amount, accrued interest, and withheld tax.
If the amount of tax withheld at the source of payment is used in the organization’s corporate income tax calculation, it must be supported by documents. This is the condition established for the corresponding reduction of the calculated corporate income tax (Article 345 of the Tax Code of the RK).
What to Check Before Calculating Tax
The main practical error when dealing with a deposit is determining the tax based only on the name of the banking product or the total amount received. The substance of the agreement, the purpose of the payment, and the information in the bank documents are important for accounting purposes. If the statement contains a single amount without a breakdown, the accountant needs a document that makes it possible to separate the deposit amount, interest, and withholding.
The accrual period and the date on which the payment is recorded in the bank statement should be checked separately. This information is required to reconcile the transaction with the accounting registers and the relevant tax period. Article 345 establishes the procedure for calculating corporate income tax for a tax period, including a reduction by tax withheld at the source of payment during that period, provided that supporting documents are available (Article 345 of the Tax Code of the RK).
If the deposit belongs to an organization, the accountant must check under which type of activity the corresponding income has been recorded. Article 345 provides for the calculation of corporate income tax on taxable income for each type of activity using the applicable rate (Article 345 of the Tax Code of the RK).
At the same time, Article 345 does not in itself confirm the tax rate applicable to bank interest, the taxation procedure for an individual’s income, or the withholding tax rate applicable to a non-resident. These matters cannot be resolved through a broad interpretation of the provision governing the general calculation of corporate income tax.
Before completing the calculation, the accountant should check that the agreement, bank statement, document confirming the accrual of interest, and confirmation of tax withholding are available. The amounts in these documents must be reconcilable with the indicators in the accounting and tax registers.
Frequently Asked Questions
Is the bank deposit amount itself taxable? — For accounting purposes, it is necessary to distinguish between the amount placed or returned under the agreement and the interest accrued by the bank. Article 345 regulates the general calculation of corporate income tax but does not establish a special rule on the taxation of the entire bank deposit amount.
How should the tax rate on interest from a non-resident’s deposit be determined? — Article 345 does not contain withholding tax rates for non-residents. Therefore, the rate cannot be selected on the basis of this article. The recipient’s status, the type of payment, and the amount withheld must be recorded separately in the transaction documents.
Can an international treaty be applied? — Article 345 does not regulate the conditions for applying international treaties to income from bank deposits. The mere presence of a foreign recipient does not permit the corporate income tax calculation to be changed under the rules of this article.
Which documents does an organization need in relation to bank interest? — The agreement, bank statement, document confirming the accrual of interest, and confirmation of tax withholding, if tax was withheld, will be required to reconcile the transaction. A supporting document is mandatory to reduce the calculated corporate income tax by the tax withheld at the source of payment (Article 345 of the Tax Code of the RK).
Can withheld tax be taken into account when calculating CIT? — If supporting documents are available, the calculated corporate income tax is reduced by the corporate income tax withheld at the source of payment during the tax period in accordance with the rules of the Code. Article 345 also takes into account tax withheld at the source of payment and carried forward from previous tax periods in accordance with the established procedure (Article 345 of the Tax Code of the RK).