RMD Numbers and Bank Accounts

The Cook Islands Herald recently outlined that a withholding tax of 30 per cent would apply on interest earned on bank deposits in the Cook Islands, this is not the case.   Unfortunately, no attempt was made to verify with MFEM that the article was correct prior to publishing.

In the Cook Islands the only withholding tax which applies on interest earned on bank deposits relates to non-residents of the Cook Islands. Non residents are required to pay a final withholding tax of 15 per cent on interest.  No withholding tax applies to interest earned on bank deposits by Cook Islands residents.

The requirement to have RMD numbers linked to bank accounts from 1 January 2015 was made law in December 2013 when the Parliament passed a large number of changes to the Income tax Act.  

The changes made at the time significantly decreased the income tax paid by Cook Islanders; removed the 15 per cent withholding tax that applied to interest earned by residents; and incorporated administrative changes that would assist MFEM to improve its ability to collect taxes (which ultimately pay for public services such health, education and infrastructure) and improve the services it provides to the taxpayers of the Cook Islands.

Currently, there is no technological interface between taxpayers and MFEM. Most of the interactions on taxation are paper based, with taxpayers having to complete manual forms and MFEM staff then inputting those details into the Revenue Management System (RMS).  

In a concerted effort to modernise tax collection in the Cook Islands, there will be a two phase improvement of the RMS predominantly focusing on incorporating a web-lodgement system and automatically capturing data from employers and banks. 

The first phase will focus on allowing businesses to submit their PAYE and VAT details online and this is expected to be operational by July 2015. 

The second phase, will involve individuals being able to access their details and lodge their tax returns online.  

Currently, taxpayers have to do a lot of paperwork to fulfil their obligations and also have to wait some time to get updates from MFEM on tax payment details.  The first phase of automation will significantly improve MFEM’s ability to service taxpayers in this.  The upgraded system will eventually allow individuals and businesses (or their accountants) to:

  • access their own taxation information online;

  • reduce paperwork between the taxpayer and MFEM;

  • lodge their returns online;

  • receive updates on returns; and

  • lodge their returns whilst out of the country.

There has been some discussion around the requirement for bank account holders to submit RMD numbers to the banks.   It is a common practice to require a bank account holder to submit the equivalent of an RMD number or a social security number.  In Australia and New Zealand there is a legal requirement to provide the equivalent of the RMD number.  In both countries if this is not submitted a withholding tax applies to both residents and non residents.  In Australia this rate is 45 per cent and in New Zealand it is 38 per cent. In the Cook Islands the withholding tax of 15 per cent only applies to non residents of the Cook Islands.

Increasing the use of the RMD number in the overall taxation system is a crucial component to successfully modernising the system to which will ultimately deliver benefits to the taxpayer and the community at large.  That is why a requirement that every bank account in the Cook Islands have an RMD number attached to it was introduced.  Obviously, it is expected that compliance will also improve and that everyone pays their fair share of tax.  

These changes will save taxpayers time in lodging their returns, ensure that the right amount of tax is paid by everyone and reduce the opportunities for people to evade tax for the betterment of the country as a whole.