Paperwork: Witholding tax - Avoiding and reclaimingWhen payments are made from one country to another for royalties and services, tax is sometimes deducted at source, payable to the tax authorities in the country from which the payment is made. This is called witholding tax.
Sometimes witholding tax can be avoided if we supply an appropriate residency certificate. Residency certificates are therefore supplied to all new customers and at the beginning of each calendar year.
If witholding tax is deducted, we need to avoid paying tax both in your country and in ours:
- Confirmation of tax paid: In some countries a certificate of tax paid is supplied with each payment. In other countries a certificate of tax deducted is supplied at the end of each calendar or tax year. In the absence of either of the above we will send you our own form at the end of our tax year (end of March), detailing the payments made and amounts witheld. Someone in authority at your company, such as your Finance Director, then signs this form to confirm that the deductions have been paid as tax to your tax authority.
- Declaration of intention: If witholding tax is going to be deducted, we will ask you to sign a declaration of intention form giving the percentage that you intend to withold and pay your tax authority, and your tax code (which may be different from your VAT registration if you are taxed in Europe). This keeps our tax man happy if they visit before we receive confirmation of the tax you have actually paid.
- Reclaiming tax: When we make our tax return at the end of each financial year, we reclaim the tax witheld against the corporation tax we would otherwise have to pay. The alternative, reclaiming tax from your tax authority, is theoretically possible (given the appropriate paperwork) but prohibitive in practice as we would not only need evidence of the amount of tax witheld, but would need to establish our identity to each tax authority.