Company Withholding Tax issues

[VicFoster]

Good afternoon

The limited company I work for is invoicing services to customers in countries such as Nigeria and Egypt. We have been advised that a percentage (7.5 and 20% respectively) of our invoices will be withheld, to be claimed back in the future. I am trying to establish how long it will take to get back the amount of money withheld. These services are on-going, with invoices being submitted weekly or monthly, meaning we are paying out more than is coming in until we get the WHT element back.

Our accountants have advised that it may be January 2013 before we get back monies withheld in the current financial year.

[maths]

You need to check whether the countries levying the w/tax have the right to do so under the relevant double tax agreement with the UK.

If they don't you will need to claim it back from them; if they do, then the UK company will get a tax credit offset against their UK tax liability.

[VicFoster]

Thanks Maths

I think both countries in question have a DTA with the UK, which leaves us with the question of timescale in terms of getting w/tax back. Can you shed any light on this?

[section 44]

Won't the credit be against the companies UK tax liability (effectively when its liable to otherwise pay the UK tax)?

[maths]

Th eUK does have a DTA with both countries.

Many countries levy domestic withholding taxes on payments to non-residents; however, under some DTAs the countries concerned may not have the right o levy such taxes.

You thus first need to read the DTAs and establish, given the nature of the work carried out, whether or not the right to levy a w/tax subsists under the DTA.

If they do not, then you will need to reclaim it back from them. The time period varies from country to country; there is no average time period. It can be many months.

If they have the right under the DTA to levy the w/tax then you cannot reclaim it from them (or the UK) but will simply be allowed to offset it against the company's corporation tax liability.

Either way the w/tax represents adverse cash flow.

[Incredulum]

Do you have a permanent establishment (i.e. branch) in those countries?

[VicFoster]

Thanks all for your advice.

We do not have a representative branch in either country, so it seems to a question of offsetting the WHT against corporation tax - I shall get my MD to talk to our accountants! We will certainly make more allowances on future quotes to account for the WHT element, so that we can mitigate the adverse cashflow situation

[Incredulum]

Hang on, I thought you implied in your first post that it can be reclaimed from the country in question? HM Treasury isn't that keen on letting other countries get their hands on our cash.

[VicFoster]

Sorry if I've confused you - I am confused myself!

From the advice given to me in this forum I now understand that WHT is not something you "claim back", but it can only be offset against our company's corporation tax liability. If you can offer any advice as to how soon we can offset WHT, that would be great - to wait until January 2013 to offset WHT in the current tax year seems inordinately long.

[maths]

From the advice given to me in this forum I now understand that WHT is not something you "claim back", but it can only be offset against our company's corporation tax liability

Certainly that is not what my posting states, namely:

You thus first need to read the DTAs and establish, given the nature of the work carried out, whether or not the right to levy a w/tax subsists under the DTA.

If they do not, then you will need to reclaim it back from them. The time period varies from country to country; there is no average time period. It can be many months.

If however no reclaim under the DTA is possible then it may be offset against the company's corporate tax liability; thus, the benefit is only taken at the date the company is due to pay its corporate tax charge.