Withholding tax

Produced by Tolley
Withholding tax

The following Corporation Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Withholding tax
  • Introduction
  • Interest
  • Source
  • Payment
  • Exemptions
  • Royalties
  • Exemptions
  • Offshore receipts of non-UK companies
  • UK permanent establishment (PE) use of intellectual property
  • More...

Introduction

UK tax must be withheld on UK payments including:

  1. interest

  2. royalties

  3. rental income

Withholding tax may be reduced under double tax treaties (DTT) or (for payments made before 1 January 2021) European directives, both of which may be subject to making a formal claim. From 1 January 2021 (technically from 11pm (GMT) on 31 December 2020, referred to as ‘Implementation Period (IP) completion day’), the European directives which reduce withholding taxes on payments of interest, royalties and dividends no longer apply to the UK. This will have less of an impact for outgoing payments made from the UK to companies in the EU, as the directives have been implemented into UK law. As a result, there should be no withholding taxes for UK companies and EU companies that have a permanent establishment in the UK who make payments of dividends, interest or royalties to associated companies in the EU.

The treatment of incoming payments is more complex and will largely depend on the terms of the DTT between the UK and the relevant EU jurisdiction. After IP completion day, some EU member states may start to deduct tax from dividend, interest and royalty payments that used to be exempt under the directives. The amount of tax deducted will depend on the rate set out in the DTT between the UK and the EU member state. However, the UK resident company may be able to apply for a refund of some or all of the amount of tax withheld under the relevant DTT.

As reliance will instead now be made on a DTT, companies should ensure that all relevant documentation is prepared where a formal claim is required in the EU jurisdiction. This should be completed as soon as possible to reduce any potential WHT exposure and in advance of any material payments. Where the DTT does not fully reduce the WHT, consideration should be given to a reorganisation of group loans / structure so as to mitigate

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