deposit in lats at 6%?

S

serotoninsid

Registered User
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Hi. Just been checking out latvian banks - and I see its possible to get a 1 Year fixed in lats at 6% or 1 year fixed in € @ 4.5%. Theres a 10% tax on interest.

How risky is the lat at the moment?
 
serotoninsid said:
Hi Ciaran - yes, thats my main concern although the rate is attractive.
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Well it can't be attractive both ways? Would you have to convert into LAT and then eventually back to EUR when withdrawing? The risk is what happens to FX during that period.

Given you can get 3% here and the additional FX risk, 10% tax in Latvia, and income tax payable here I would say you would need to be depositing a huge sum to make it worthwhile.
 
If you are a 41% taxpayer, you will pay 41% income tax on foreign interest earned. In contrast, interest earned within the State is subject to 25% DIRT with no further income tax liability for the taxpayer. This makes Irish deposits much more attractive tax-wise than investing funds overseas.
 
You should also check out how secure are the Latvian banks and what are they backed by. Remember Iceland !!
 
Mpsox said:
You should also check out how secure are the Latvian banks and what are they backed by. Remember Iceland !!
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I know that they have a government bank guarantee scheme like ours for amounts under €100k- but I don't know if thats worth the paper its written on??
 
serotoninsid said:
Hi. Just been checking out latvian banks - and I see its possible to get a 1 Year fixed in lats at 6% or 1 year fixed in € @ 4.5%. Theres a 10% tax on interest.

How risky is the lat at the moment?
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So am i right in thinking theres effectively DIRT of 10%? As a non resident would you still be required to pay it?

T McGibney said:
If you are a 41% taxpayer, you will pay 41% income tax on foreign interest earned. In contrast, interest earned within the State is subject to 25% DIRT with no further income tax liability for the taxpayer. This makes Irish deposits much more attractive tax-wise than investing funds overseas.
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By my number crunching if you pay both the 10% foreign DIRT and 41% tax you're looking at an after tax return of 2.39%. To get the equilivant here you'd need a return of 3.3% before DIRT.

IF you don't have to pay the 10% and you could get away at being taxed at 20% (not a tax expert but I presume if you're below the top rate ceiling you're taxed at the lower rate) you'd be making a return of 3.6% after tax. In terms of Irish rates you'd have to be earning 5% gross to equal this return.

Don't forget that there are likely to be other charges such as cross-border transactions fees which will have the effect of reducing your effective interest rate

Looking at the other option of depositing in local currency. I wouldn't really be calling that a deposit/savings product. It's really just taking a position in a currency regardless of the rate.

serotoninsid said:
I know that they have a government bank guarantee scheme like ours for amounts under €100k- but I don't know if thats worth the paper its written on??
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You mean a deposit gurantee scheme (not to be confused with the bank gurantee scheme)....Haha you saying ours is any better :p
 
Note for your calculations - Under double taxation agreements, you would be credited for the Latvian 10% when it comes to paying the 41% income tax
 
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