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United Kingdom Corporate - Withholding taxes

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Under UK domestic law, a company may have a duty to withhold tax in relation to the payment of either interest or royalties (or other sums paid for the use of a patent). The circumstances in which such a liability arises are discussed below.

There is no requirement to deduct WHT from dividends. Therefore, dividends may always be paid gross, regardless of the terms of the applicable DTT.

Please note, however, that this is not an exhaustive list of all the deductions that might be required to be made in respect of UK tax from payments made to or by companies. In particular, non-resident companies that are subject to UK income tax on UK-source rental profits (see the Taxes on corporate income section for more information) will find their letting agent or tenants are obligated to withhold the appropriate tax at source (currently 20% without any allowances) from their rental payments unless the recipient has first applied and been given permission to receive gross rents under the NRL scheme. Two other important examples are the UK's deduction at source regime for entertainers and sportsmen, and the scheme under which payments to unregistered subcontractors working on big building projects may need to have tax deducted at source.

Interest WHT

As a general rule, UK domestic law requires companies making payments of interest to withhold tax at 20%. However, there are a number of exceptions to this general rule. The key exclusions are:

  • Payments of interest by UK resident companies if the beneficial owner of the interest is also a UK resident company, or a UK PE, provided the interest concerned will be taxed in the United Kingdom as part of the PE's trading profits.
  • Payments of interest on a quoted Eurobond.
  • Payments of interest that qualify for exemption under the EU Interest and Royalties Directive.
  • Payments of interest paid to or by a UK bank (or a UK PE of a foreign bank).
  • Payments of 'short' interest. This is, broadly speaking, interest on loans that will not be in place for more than a year. However, the definition can be contentious, and detailed advice should be taken on this if intending to utilise this exemption.
  • Payments of interest that do not 'arise' in the United Kingdom. Whether a payment constitutes UK-source interest is a complex issue, and specialist advice needs to be taken if seeking to use this exception.
  • Payments of interest on private placement debts (widely defined) of UK companies.

If none of these exceptions apply, a payment of interest must be made after the deduction of WHT unless (or until) HMRC has given authorisation that the payment may be made gross (or with a reduced rate of WHT) because of the applicability of treaty relief for the recipient.

Royalties WHT

UK domestic law requires companies making payments of patent, copyright, and design royalties that arise in the United Kingdom to deduct WHT at 20%. In addition, there is also the possibility that other royalties that arise in the United Kingdom may also be subject to the same rate of WHT if they constitute 'qualifying annual payments', so specialist advice will be needed to clarify this. However, certain types of royalties, such as film royalties and equipment royalties, will generally not be subject to UK WHT.

Unlike the rule regarding interest, a company may make a royalty payment gross of WHT (or subject to a reduced rate of WHT under a treaty) without prior clearance having been given by HMRC if they reasonably believe at the time the payment is made that the payee is entitled to relief under the treaty. However, if that belief is later found to be incorrect, HMRC may direct that the payment must be made net of WHT, with the WHT paid to HMRC, and the payer may be subject to interest and penalties in respect of the WHT that should have been withheld (even if their belief was reasonable).

From September 2016 (and earlier for cases involving avoidance), a wider class of royalties, including trademarks and brand names, have been subject to deduction of income tax at source.

Double taxation treaties (DTTs)

The tables below set out the rates of WHT applicable to the most common payments of dividends, interest, and royalties under UK domestic law where such a liability arises and the reduced rates that may be available under an applicable DTT. Please refer to specific treaties to ensure the values are up to date.

Dividends

There is no requirement to deduct WHT from dividends. Therefore, dividends may always be paid gross, regardless of the terms of the applicable DTT.

Interest

WHT applies only to 'annual interest' (i.e. excluding interest on certain short-term loans). Banks and similar financial institutions are also normally able to pay annual interest to non-UK residents free of WHT. In addition, most of the UK treaties provide for a zero-rate of withholding on interest paid to governmental and quasi-governmental lenders. Such exemptions are not separately indicated in the tables below.

Resident recipients

Resident recipient Interest (%) Royalties (%)
Corporations 0/20 (1) 0/20 (1)
Individuals 20 20

Note

  1. Payments to any UK resident company can be made free of WHT if the recipient is chargeable to tax on the interest or royalty.

Non-resident recipients

Non-resident recipient corporations and individuals Interest (%) Royalties (%)
Non-treaty territories 20 20
Treaty territories:
Albania 6 0
Algeria 7 10
Antigua and Barbuda 20 0
Argentina 12 3/5/10/15 (1)
Armenia 5 5
Australia 0/10 (2) 5
Austria 0 0/10 (3)
Azerbaijan 10 5/10 (4)
Bahrain 0 0
Bangladesh 7.5/10 (2) 10
Barbados 0 0
Belarus 0 0
Belgium 0/10 (5) 0
Belize 20 0
Bolivia 15 15
Bosnia-Herzegovina 10 10
Botswana 10 10
British Virgin Islands 20 20
Brunei 20 0
Bulgaria 5 5
Canada 0/10 (7) 0/10 (4)
Cayman Islands 20 20
Channel Islands:    
Guernsey (includes Alderney and Hern) 20 20
Jersey 20 20
Chile 5/15 (2) 5/10 (6)
China (excludes Hong Kong) 10 6/10 (4)
Colombia (not yet in force) 10 10
Croatia 5 5
Cyprus 10 0
Czech Republic 0 0
Denmark 0 0
Egypt 15 15
Estonia 10 0
Ethiopia 5 7.5
Falkland Islands 0 0
Faroes 0 0
Fiji 10 0/15 (7)
Finland 0 0
France 0 0
Gambia 15 12.5
Georgia 0 0
Germany 0 0
Ghana 12.5 12.5
Greece 0 0
Grenada 20 0
Guyana 15 10
Hong Kong 0 3
Hungary 0 0
Iceland 0 5
India 10/15 (2) 10/15 (6)
Indonesia 10 15
Ireland, Republic of 0 0
Isle of Man 20 20
Israel 15 0
Italy 0/10 (6) 0/8 (7)
Ivory Coast (Côte d’Ivoire) 15 10
Jamaica 12.5 10
Japan 0/10 (10) 0
Jordan 10 10
Kazakhstan 10 10
Kenya 15 15
Kiribati 20 0
South Korea (Republic of Korea) 10 2/10 (8)
Kosovo 0 0
Kuwait 0 10
Latvia 0/10 (2) 0/5/10 (6, 7)
Lesotho (new treaty not yet in force; royalty rate will be 7.5%) 10 10
Libya 0 0
Liechtenstein 0 0
Lithuania 0/10 (2) 0/5/10 (6, 7)
Luxembourg 0 5
Macedonia 10 0
Malawi 0/20 (3) 0/20 (4)
Malaysia 10 8
Malta 10 10
Mauritius 20 15
Mexico 5/10/15 (7) 10
Moldova 5 5
Mongolia 7/10 (2) 5
Montenegro 10 10
Montserrat 20 0
Morocco 10 (6) 10
Myanmar 20 0
Namibia 20 0
Netherlands 0 0
New Zealand 10 10
Nigeria 12.5 12.5
Norway 0 0
Oman 0 8
Pakistan 15 12.5
Papua New Guinea 10 10
Philippines 10/15 (2) 15/25 (9)
Poland 0/5 (2) 5
Portugal 10 5
Qatar 0 5
Romania 10 10/15 (4)
Russian Federation 0 0
St. Kitts and Nevis (St. Christopher and Nevis) 20 0
Saudi Arabia 0 5/8 (6)
Senegal 10 10
Serbia 10 10
Sierra Leone 20 0
Singapore 0/5 (2) 8
Slovak Republic 0 0
Slovenia 0/5 (2) 5
Solomon Islands 20 0
South Africa 0 0
Spain 0 0
Sri Lanka 10 0/10 (9)
Sudan 15 10
Swaziland 20 0
Sweden 0 0
Switzerland 0 0
Taiwan 10 10
Tajikistan 10 7
Thailand 25 5/15 (9)
Trinidad and Tobago 10 0/10 (9)
Tunisia 10/12 (2) 15
Turkey (excludes North Cyprus) 0/15 (2) 10
Turkmenistan 10 10
Tuvalu 20 0
Uganda 15 15
Ukraine 0 0
United Arab Emirates 0 0
United States 0 0
Uruguay 10 10
Uzbekistan 5 5
Venezuela 5 7
Vietnam 10 10
Zambia 10 5
Zimbabwe 10 10

Notes

UK domestic law generally charges WHT on patent, copyright, and design royalties, although there can be definitional uncertainties. Many treaties allow reduced rates for a wider range of royalties. These are mentioned in this table, even though there may be no UK WHT applied under domestic law.

  1. 3% for news; 5% for copyright; 10% industrial; 15% other royalties.
  2. Lower rate for loans from banks and financial institutions.
  3. Higher rate applies if recipient controls more than 50% of payer.
  4. Lower rate applies to copyright royalties.
  5. 0% on loans between businesses.
  6. Lower rate applies to industrial, commercial royalties.
  7. Specific additional conditions apply for lower rate.
  8. Lower rate applies for equipment royalties.
  9. Lower rate applies to films, TV, and radio.
  10. Higher rate applies to certain profit related interest.

Last Reviewed - 22 June 2017

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