- Withdrawal by a controlling shareholder (Section 3(t1))
- Income transferred from a "wallet" company (Section 62a)
As a reminder, according to an amendment to the Income Tax Ordinance, effective from 2017, the following sections were added:
– Section 3(t1) which sets rules for tax liability regarding withdrawals by a controlling shareholder from a company under his control.
The rules specify when these withdrawals will be charged as dividends, when as salary income, and when as business income.
Section 62A, which sets rules regarding taxation of income from a 'wallet" company in the hands of the company's shareholders. The rules detail when such income will be taxed as business income and when as salary income.
Regarding the issue of national insurance contributions for the income detailed above, the National Insurance Institute recently published guidelines on the matter.
To review the (very detailed) circular published by the National Insurance Institute Click here
In brief, according to the guidelines in the circular, income that is considered for tax purposes as personal income from a salary or business pursuant to Sections 3(T1) or 62A, will be subject to National Insurance contributions as self-employment income (at a rate of 17.83%, subject to a ceiling and age limits). Income considered for tax purposes as dividend income will not be subject to National Insurance contributions.
It should be noted that these National Insurance Institute guidelines are based on interpretation and not on an explicit provision in the law, and that another legal interpretation is also possible.
