Mintos investors Q&A: Let’s talk about Notes

To cover the topics of interest for investors when it comes to Notes, we collected questions via the Slido form over the last two weeks, and now we’re sharing answers with this special article “Mintos investors Q&A: Let’s talk about Notes”.

We took the questions with the most upvotes, and in the following text, we’re sharing responses to 43 questions, grouped around 4 topics that emerged as the ones that interest investors the most:
I – 20 questions about withholding taxes
II – 10 questions about general topics of investing on Mintos in the Notes setup
III – 8 questions about the Secondary Market and cashout possibilities for investments in claims
IV – 5 questions about changes in the role of the lending companies in the Notes setup

I - Questions about taxes, tax withholding, and DTT

Questions are shared in original form without editing, as they were posted by investors on Slido.

I-1. Anonymous (90 upvotes)
I love how you tried to bury the most important change – withholding tax – at the very end and with zero clarification. Same for 2ndary market changes
I-2. Anonymous (75 upvotes)
Please, I’d like to have a simple guide about taxing for Notes.
I-3. Anonymous (59 upvotes)
“We’ll provide more details on tax withholding on the date of Notes launch.”Can you provide information BEFORE Notes will come?
I-4. Japke (21 upvotes)
Mintos is unable to give tax advice, but will there be guidance provided on how double tax treaties (DTT) and withholding tax (WHT) work for the EU countries?
I-5. Manos (13 upvotes)
Please clarify the tax withholding details prior to the notes launch date. Otherwise I’ll be forced to stop the investments until this information is available.
I-6. Anonymous (10 upvotes)
Wie hoch ist der Steuerabzug und kann dieser reduziert werden? (How high is the tax deduction and can it be reduced?)
I-7. Anonymous (4 upvotes)
Wird bei den Schuldverschreibungen Steuern einbehalten, muss man Quellensteuern zahlen ? (Will taxes be withheld on the Notes, do I have to pay withholding taxes?)

Response to questions 1-7

We invited investors to ask questions for this Q&A article just after we shared the information about the date of the launch of Notes. We soon followed up with an email to investors with general tax-related details on 19 May 2022. With answers provided here, we will aim to further expand information about Notes and tax withholding.

About tax withholding
First, we will share about tax withholding in general. Please note that the answers provided below are applicable to the current legislation setup. Already for some time, we’ve been working with the Latvian financial trade associations and other stakeholders to amend the law in a way that would impose a flat 5% withholding tax rate for investors who are private individuals from the EU, and without a need to submit additional documents by investors. At the same time, the 0% withholding tax rate for investors who are legal entities would be preserved. We will inform you about the progress and results of this work.

Withholding tax (WHT) is a common tax practice and a way for countries to manage income generated in one country and paid out to someone in another country. The entity that manages the tax withholding process is usually the one that pays out income to investors who have earned it. For example, it can be a company that makes dividends or interest payments or a bank that makes interest payments to its clients (deposit holders). In the case of Mintos and financial instrument Notes, the issuer (a special purpose entity, established in Latvia) is the subject that will be paying out the interest, hence the one who will be managing the tax withholding process.

The economic background behind tax withholding is that governments tax the income generated in their countries. While it’s well known that governments tax the income of their residents, tax withholding is enabling them to do this also for the income made in their country by non-residents.

While tax withholding enables countries to tax income made within their jurisdiction, WHT is also structured in a way that protects individuals (investors) from facing double taxation. To avoid or minimize the possibilities of double taxation (which in certain situations can occur), countries are signing double tax treaties (DTTs). DTTs are agreements between two countries to resolve issues involving double taxation of their respective citizens. Among other points, they define lower tax withholding rates on particular types of income, such as income earned from interest. Here you can find the list of countries that have DTTs with Latvia, and the WHT rates for those countries.

Example: If the investor’s local personal income tax rate in their country of residence is 19%, and the DTT with Latvia stipulates a deduction of 10%, this means that 10% of the income earned with investments in Latvia will be withheld (as WHT), and the investor will pay 9% in their country of residence, amounting to 19% in total.

Although tax withholding is a widespread practice, the applicable WHT rates and processes of obtaining eligible tax certificates vary from country to country, due to different tax policies. As a result, the investor’s WHT experience differs based on their country of residence, and the country where income is generated.

This is how it might look in practice.

The tax rate applied in investors’ countries of residence vary: from zero tax, tax in the lower range of 3-5%, or tax in the higher range of 20% or more. The country-based differences are also reflected in how straightforward it is to obtain the required document (tax resident certificate) that will enable the payer (e.g. issuer in the case of Mintos) to apply DTT on an investor’s income in a foreign country. While obtaining the tax resident certificate needed for DTT for residents of some countries may be as simple as obtaining self-declaration, for others this might imply reaching out to the home country’s tax service with a request for the tax resident certificate (which is instructed by the Latvian law, too).

To get more information about the DTT, investors should research what is the minimum double tax treaty rate for their country and what paperwork is necessary to get it. We provide information about the double tax treaty rates for these countries.

To remind, all tax-related requirements for Mintos are set by the Latvian tax authorities and Latvian law.

I-8. Anonymous (43 upvotes)
Will it be possible to reduce the withheld tax to 0% by uploading a “Certificate of Residence”?
I-9. Anonymous (43 upvotes)
Will there be a tax credit for capital gains (Steuerbescheinigung für Kapitalerträge) for German users as we get it from regular banks?

Response to questions 8-9

We are not in a position to comment on the specificities of the German tax legislation in relation to Mintos. Anyhow, we will open a form where investors will be able to share what kind of reporting they would need to have available on Mintos, based on the country where they reside. 

Investors as private individuals can decrease the withholding tax rate that applies to their income made in a foreign country by submitting the tax resident certificate (or a corresponding document depending on the country) to Mintos. If a country has a DTT with Latvia as the jurisdiction of Mintos, the DTT will be applied to the investors’ final tax statement, without any other action required by the investor. 

According to the local legislation, most countries in the EU have a withholding tax rate of 10% (see list). 0% tax deduction rate based on DTT is only available to residents of Lithuania.

Please check this list about the applicable DTT rates and contact your local tax authorities if you have any questions about how to obtain the tax resident certificate.

Income from investments made by investors as legal entities has a 0% withholding tax rate by default, as defined by applicable laws and regulations.

I-10. Anonymous (27 upvotes)
What if there is a partial loss, will you return the withholding tax?

WHT is held by the issuer (in the case of Mintos Notes, a special purpose entity established in Latvia) and paid to the local tax authorities. The tax is withheld at the moment when income is paid to the investor’s account – without generated income, no tax is withheld. If the investment suffers partial loss in the period until maturity, the state does not return the tax that was previously withheld on the generated income. Still, investors should consult their local tax authorities about whether the loss can be deducted from the tax paid in their tax residence country.

I-11. Anonymous (12 upvotes)
In order to reduce the withholding tax, which documents have to be uploaded on the platform? Just a Tax Residence Certificate or also a specific form?

According to the Latvian legislation that regulates the operations of Mintos, an investor who is a private individual needs to submit the tax residence certificate obtained from the local tax authorities. The tax residence certificate needs to include the following information:

– first and last name 
– personal ID
– the period to which the certificate refers (usually a calendar year) 

An additional form only needs to be provided when an investor generates more than €5000 income during one calendar year and from one issuer (e.g. from loans issued by one lending company or group of related lending companies, depending on the structure of prospectuses). However, there are very few investors that might fall under this requirement. If we see that an investor is approaching this limit, we will reach out to them on time to notify them about the next steps. 

I-12. Anonymous (12 upvotes)
Why should I go with notes while you cannot even tell me about the submitted CRS report data of last year (claims only). Proper tax decleration is impossible.

Mintos obtained the investment firm license in August 2021, which means that our first CRS report will be submitted in September 2022. Find more information about the CRS here.

I-13. Anonymous (11 upvotes)
In Spain we’re required to declare (modelo 720) each single note and their values in the last quarter every year, will you provide that information/export(csv)?

I-14. Anonymous (8 upvotes)
How will Mintos support client tax reporting? Will you provide tax reports for each EU country to ease the filing for tax returns for your clients?

Response to questions 13-14

Yes, as an investment firm, we will provide regular account statements that will include also this information (question I-13), and tax reports to help investors declare the amounts of income earned and amount of tax withheld (I-14)

We will have a dedicated space in the Mintos Community, where investors will be invited to share what are their country’s specific requirements, so we can adjust deliverables accordingly.

I-15. Anonymous (11 upvotes)
Can you confirm that for legal entities investing in Mintos there will be no withholding tax when investing in Notes?

Yes, there will be no WHT for legal entities. The local tax law prescribes that WHT is not applied to interest payments to legal entities. Exceptions are so-called “tax haven countries”, e.g. British Virgin Islands, where 20% needs to be withheld. However, Mintos doesn’t accept investors from such countries anyway.

I-16. Anonymous (7 upvotes)
What is the hight of the tax (Quellensteuer) that will be deducted in the different countries, for example Germany and Switzerland?

For private individuals, the standard rate is 20%, but if the investor provides a tax resident certificate, the rates provided here apply. According to the list, Germany and Switzerland have a reduced tax rate of 10%. For legal persons, the WHT is 0%. 

I-17. Anonymous (7 upvotes)
Werden Steuern nur auf die neuen Schuldverschreibungen fällig oder auch auf die alten Investitionen in Abtretungen? (Will taxes only be due on the new Notes or also on the old investments in assignments?)

The WHT will apply only to income from investments in regulated financial instruments Notes. Income from investments in claims via assignment agreements was treated under a different tax law that doesn’t apply WHT. 

I-18. Anonymous (5 upvotes)
How can we limit the withholding tax to 10%? Would a certificate of residence be accepted?

For private individuals, the withholding tax rate can be decreased to 10% (for a few countries it’s less than that). The withholding tax can be reduced only when: 

  • there is a double tax treaty (DTT) between Latvia (as the country of issuer) and the investor’s country of residence (see the list here), 
  • AND when the investor provides a tax resident certificate. 

After a valid tax resident certificate is provided, the investor doesn’t need to take any extra steps, as the reduced WHT deduction is processed automatically by the issuer (one of the Mintos special purpose entities responsible for the specific Set of Notes). 

For legal entities, the withholding tax rate is 0%. 

I-19. Arne (5 upvotes)
Until when do you need to have the “Certificate of Residence” to reduce the withholding tax? Do you need it immediately or during this calendar year?

To apply the reduced WHT rate, investors need to provide Mintos with a tax resident certificate issued by the tax authority in the investor’s country of tax residence. The reduced WHT will be applied from the moment Mintos has received and processed the investor’s tax resident certificate. 

If the tax resident certificate is provided later, but not more than 3 years after the date of receiving interest, the investor can request repayment from the issuer’s tax authorities (for example from the Latvian tax authorities, for the excess in paid WHT). In order to keep the process as simple as possible, we advise all investors to share their tax residence certificates and upload them through the dedicated form on the platform as soon as possible.

I-20. Anonymous (4 upvotes)
Will you apply witholding tax for French customers even below 5 k€? as in France, no tax or declaration needed if all P2P lending made by an individual < 5 k€

Unfortunately, we are not in a position to comment on the specificities of the French legislation and in particular about the exceptions for the P2P lending-based income. In general, the term P2P lending has very broad use, and the legal setups that are behind the structures of such investments vary to a great extent among different countries and types of marketplaces.

When it comes to Notes, financial instruments that are regulated under MiFID II, Mintos is required to withhold tax whenever paying interest to a private investor – irrespective of the local tax incentives in the investor’s country of tax residence. However, depending on the local law, it might be possible to use this tax incentive to offset another tax bill, so please consult your local tax advisor. We will keep our Community space open for all country-specific details regarding taxes for investors from different countries. You will be notified about this through our communication channels. 

II - General topics of investing on Mintos in the Notes setup

Questions are shared in original form without editing, as they were posted by investors on Slido.

II-21. Anonymous (47 upvotes)
What interest rates can we expect for notes? Will they be lower than currently?

As before, the interest rates for Notes will be set by the lending companies. When setting the interest rate, the lending companies take into account demand and supply on the market, availability and costs of other funding sources, general micro and macro situation, and other factors. We don’t expect interest rates for Notes to be different from what they would have been in the claims setup, given the same market situation. 

II-22. Anonymous (36 upvotes)
What will happen if the current invested amount is larger than the cap allowed by the suitable and appropriate investment offering?

Based on your investment goals and net worth provided in the Suitability & Appropriateness assessment, you can invest up to a certain amount using Mintos strategies or custom automated strategies. This is part of the responsible investing requirement in line with the MiFID II framework. Once you reach the calculated amount, your automated strategies will stop, but you can still make manual investments. 

We will be reaching out by email to investors to inform them about their S&A status, whether it needs to be completed, updated or to notify them about reached limit for investing with the Mintos strategies.

You can always review your answers in the “Suitability and appropriateness” section of your Mintos Profile, and update them if your situation has changed.

II-23. Anonymous (25 upvotes)
What will be the repayment plan of the notes? Once in a month or like in bonds – at the end of the contract?

The flow of repayments under the Notes setup will largely remain unchanged compared to investments in claims, the only difference being that a Mintos SPV will stand in between as an issuer. When a borrower makes repayments to the lending company, the lending company will transfer those funds to the issuer, which will, in turn, make repayments to the designated investor’s account through Mintos. To learn more, please review the respective base prospectuses. 

II-24. Miguel (21 upvotes)
Do I have to change anything in my automated strategies, or it will automatically start using Notes instead of Claims?

II-25. Anonymous (5 upvotes)
Will notes ne automatically be available in the investment automatic strategy?

Response to questions 24-25

Notes will be automatically available in the Mintos strategies and custom automated strategies. There will be no need to change anything in automated strategies once Mintos Notes are launched. We worked to keep the user experience on the platform unchanged with the introduction of the new investment setup, and automated strategies will continue working with the same logic as they did when investing in claims. 

We encourage investors to review their automated strategies from time to time, to keep them aligned with their investment preferences and risk appetite.

II-26. George (18 upvotes)
With the minimum investement amount of 50 euro per note, it kills micro investors. Any plans to lower it?

One Note will be backed by 6-20 loans, which means that by buying one Note an investor invests on average €5 per loan. Therefore, investors will be able to build a well-diversified portfolio even with small investments.

II-27. Anonymous (6 upvotes)
is there a risk to loose the capital invested?

While investing in Notes comes with multiple benefits for investors, this does not imply that risks of investing are eliminated. Key benefits for investors include the safeguarding of investor assets, an investor protection scheme up to €20 000, a suitable and appropriate product offering, and increased transparency.

However, investing in Notes, similar to other forms of investing, still involves investment risk such as poor performance of underlying loans, borrower default, or lending company default. There is no guarantee to get back the invested capital. Any investment decision must be based on an analysis of the risks related to the investment, and investors should read the base prospectus and Final Terms. Before investing, consider your knowledge, experience, financial situation, and investment objectives. 

II-28. Kriss (6 upvotes)
In terms of repayment profile, will the planned Mintos Notes work same as current Mintos Forward Flow? meaning no more premature repayments by borrower etc

With Notes, the borrower’s actions such as early repayment of the loan will still be reflected in the repayment schedule of the respective Note. Each Note is backed by 6-20 loans, and over the lifecycle of a Note, particular underlying loans can be repaid by a borrower or rebought by a lending company before the maturity date. Underlying loans can also default. The Note remains an active investment as long as there are active loans within it. Investors can always get detailed information about this in the base prospectus.

II-29. Anonymous (4 upvotes)
Will there be extra fees or costs on the investor side given the new structure?

No, there won’t be any extra fees or costs for investors. In case we decide to introduce any fees in the future, we will inform investors accordingly.

II-30. Anonymous (4 upvotes)
How will “pending payments” work with notes?

Pending payments, if any, will work in the same way as in the setup of investments in claims. In the Notes setup, pending payments will be on a loan level, and will affect the Notes repayment schedule accordingly. 

III - Questions about the Secondary Market and cashout possibilities for investments in claims

Questions are shared in original form without editing, as they were posted by investors on Slido.

III-31. NvdK (30 upvotes)
Mintos is changing rules of the game during the game. Why not facilitate secondary market trading while people still have notes (so potentially max 5-6 years)?

III-32. Anonymous (26 upvotes)
This is not a question, but I would like to state that I think it’s unfortunate that SM trading for claims will be suspend starting from july, it’s too soon.

III-33. Miguel (14 upvotes)
How cashout of claims investments works after July 1st, if there are no primary(?) and secondary market transactions in claims?

III-34. Anonymous (13 upvotes)
How it is possible to cashout from the claim loans under Mintos strategies after 1 July. I thought it is only available when another investor buys the loan.

III-35. Anonymous (8 upvotes)
Does it mean that we will not be able to sell curent investments at secondary market after 1st of July? What about notes?

III-36. Anonymous (6 upvotes)
Will You have the secondery market after the 1.juli with Surcharge or Discounts?

III-37. Anonymous (5 upvotes)If the secondary market only lets you buy Notes, how could I use the marketplace to withdraw my inversion?

III-38. Anonymous (4 upvotes)
How do I convert my current holdings to notes so I can still keep using the secondary market after july?

Response to questions 31-38

About the Secondary Market closure for investments in claims

As much as we would like to keep the Secondary Market open for claims, unfortunately, due to regulatory requirements we are required to close it starting from 1 July 2022. However, the Secondary Market will be available for Notes, and will work the same as before.

According to regulations, once Notes are launched and the transition period is over, we won’t be allowed to facilitate transactions in non-regulated instruments such as claims. In turn, the regulator has been strict that we have to close the Secondary Market for claims. However, what we have managed to negotiate is to keep the Secondary Market for claims open until 30 June. Moreover, we have been able to agree that we can keep the cashout feature available for investments in claims made with Mintos strategies until the respective loans finish. 

We announced the closure of the Secondary Market for claims as soon as we had agreed on the final date of the transition period. Given that we were first instructed to close the Secondary Market for claims much earlier, we are pleased that we have achieved to keep it open for months after becoming licensed, thanks to the understanding from the regulator’s side. 

About cashout of investments in claims

Investors can cash out investments in claims made with a Mintos strategy even after the Secondary Market for claims closes on June 30. When an investor wants to cash out money, their strategy automatically sells investments from their strategy to other investors using the same strategy. Selling may take from minutes up to a few days, depending on demand from other investors at the time and current market conditions. You can only sell investments that still qualify for Mintos strategies: only current investments are available for cashing out. 

To cash out money from your Mintos strategy

  • Go to the Invest page, 
  • Click “…” [three dots] next to your strategy
  • Select Cash out
  • Enter the desired amount
  • Click Cash out

IV - Questions about changes in the role of the lending companies in the Notes setup

Questions are shared in original form without editing, as they were posted by investors on Slido.

IV-39. Anonymous (24 upvotes)
Do lending companies still offer buyback?

IV-40. Anonymous (15 upvotes)
I am invested Mintos because of the repurchase obligation. Will the introduction of debentures end this repurchase obligation for new investments?

Response to questions 39-40

Lending companies still offer loans that come with a buyback obligation, and these loans will be part of Notes. The buyback mechanism of Notes will be similar to the one used with investments in claims. There will be two types of Notes available for purchase – backed by loans with buyback obligation and without buyback obligation. Investors can find all details about the buyback mechanism for each lending company and Note in the applicable base prospectus.

IV-41. Anonymous (9 upvotes)
What happens if a lending company defaults or bankrupt?

In the unfortunate event of a lending company’s default on Mintos, Mintos will still represent investors and work on recovery on their behalf. The only difference that comes with the new investment setup and issuer included in the process is that the claim will be managed by the Mintos SPV as an entity having a claim against the lending company, instead of Mintos representing many investors having many claims against the lending company. In many cases, this would help to streamline the recovery process.

IV-42. Anonymous (7 upvotes)
Will Notes make it impossible for LOs to repurchase loans before due date (ie. when the interest rate is higher than current market)?

Lending companies can still repurchase one or all loans that back a Note, the same way that borrowers can still repay their loans before the maturity date. In addition, lending companies are not allowed to offer for investment the same loan that was previously repurchased.

Each Set of Notes is issued based on a pool of 6-20 loans. After the Notes are bought, underlying loans can be rebought by a lending company or repaid by a borrower before the maturity date. A Set of Notes will always have a maturity that matches the loan in its pool that has the longest maturity date, plus 10 days. Loans that are repaid prior to their maturity date will be removed from the Set of Notes.

IV-43. Anonymous (4 upvotes)
How will 1 note with buyback be handled if only 1 loan in the loan basket defaults/is more than 60days late? Will the full note be bought back by the LO?

While a Note is a financial instrument that an investment is made in, cash flows on the Note are based on its underlying loans. The underlying loans can be rebought as individual loans, prematurely repaid, or individually defaulted. If a loan with a buyback obligation is more than 60 days late, it will be bought back on its own, and the Note will remain in the portfolio with the remaining underlying loans, and an updated repayment schedule. 

Thank you all for sharing your questions and helping us address what interests you the most. The questions you shared will also be adjusted to the FAQ format, and shared in the Help section of Mintos.

For all possible changes in answers provided here, we will inform you timely.

Please, remember to share with us your feedback about the formats and templates you would need for your tax declaration obligations. 

Want to know more about Notes?

No question is left unanswered! If you’re just getting started with Notes, you can begin by reading the must-have information. You can also get insight into how Notes are created and discover the transparency benefits of the Mintos Notes base prospectuses. Or learn about the transition period from claims to Notes, take a deep dive into taxation, find out about the changes to the Secondary Market, and other general questions from investors in the Mintos Investor Q&A. Then, for anything not covered here, you can visit our dedicated Notes Help page.

Still curious to learn more? You’re welcome to share your questions in the Notes thread on the Mintos Community.

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