Withholding tax

By Tolley in association with Robert Langston of Saffery Champness
Corporation_tax_img

The following Corporation Tax guidance note by Tolley in association with Robert Langston of Saffery Champness provides comprehensive and up to date tax information covering:

  • Withholding tax
  • Introduction
  • Interest
  • Royalties
  • Double tax treaties and European Directives
  • Rental income
  • Overseas dividends
  • Further reading

Introduction

UK tax must be withheld on UK payments including:

  • interest
  • royalties
  • rental income

Withholding tax may be reduced under double tax treaties (DTT) or European directives, both of which may be subject to making a formal claim.

This guidance note outlines the rules for UK withholding tax, and how relief may be claimed under a DTT or European directive for UK and overseas withholding taxes.

It should be noted that UK companies may also suffer overseas withholding tax where they receive income from outside the UK. In addition to interest, royalties and rental income, withholding tax may also arise on dividends or technical fees.

Please note that all cases below are subscription sensitive.

Interest

Tax at the income tax basic rate (20%) must be withheld from certain UK interest which is paid to a company or individual resident outside the UK.

UK withholding tax arises if:

  • the interest has a source in the UK
  • it is yearly interest
  • it is actually paid

See also Withholding tax on payments of interest and Simon’s Taxes A4.421 (subscription sensitive).

Source

Following the decision in Westminster Bank v National Bank of Greece, HMRC sets out the following factors for determining the source of interest:

  • the place in which the debt will be enforced, which will often be the residence of the debtor, but may also require a consideration of the law under which the loan agreement is drawn up

More on UK tax for non-UK companies: