Imposition of 10% additional tax for employees with income other than employment income
The Tax Department, issued the Explanatory Circular no. 54, on 19 October 2021, which states the imposition of 10% additional tax for employees with income other than employment income.
In particularly, the circular refers to the provisions of article 24 of the Assessment and Collection of Taxes Law which provides that a person who derives income other than from emoluments (e.g., rental income) must declare this other income during the same year that is generated and pay temporary income tax (twice a year).
The circular refers also to the provisions of article 26 of the Assessment and Collection of Taxes Law which provides that if the expected chargeable income is less than 75% of the actual chargeable income as this will be declared on the submitted personal income tax return for the year, then there will be an additional tax of 10% on the difference between actual tax payable and the temporary tax paid.
There are cases where employees generate other income than their employment income such as rental income, and declare this other income to their employer through Form TD59. The later takes into consideration the other income in the payroll process and calculates and withholds the relevant income tax by taking into consideration both the employment and other income. In such circumstances, it is probable that there will be no income tax due or the income tax withheld may match up to an income which constitutes at least 75% of the extra chargeable income.
Conversely, since the individual did not declare the estimation of his chargeable income (e.g. rental income) and did not pay any temporary tax, as provided by the
provisions of the Assessment and Collection of Taxes Law, a 10% additional tax has been imposed.
In light of the above, it has been clarified through the issuance of the Circular that, when the amount of income tax, corresponding to that other income exceeds 75% of the tax attributable to that income and is paid as part of the withholding tax by the employer through the PAYE process, then the 10% additional tax will not be imposed.
In cases where the individual suffered, through payroll withholding, the income tax corresponding to such other income which exceeds 75% of the actual final tax on such other income then:
a) During the examination of the individual’s income tax return, for the purposes of issuing an Income Tax assessment, the 10% additional tax will not be imposed.
b) In cases where tax assessment has been issued and the 10% additional tax has been imposed then the individual can submit an objection for the 10% additional tax to be waived.
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