UK Non Resident - Income Tax Deducted at Source

UK Non Resident - Income Tax Deducted at Source

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Hello All

The following scenario

Non UK Resident (become Non Resident c 10 years ago)

Has invested in a Private UK company

Is receiving a "profit" on the investment

Is it fair to say this is interest?

If so, should there be a deduction of tax by the payer, of 20%?

Please comment

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By frustratedwithhmrc
30th Jun 2012 06:39

It depends on many factors

You say that he has "invested" in a Private UK company, in which case what is the form of the investment?

If in return for capital, your client has received shares in the company and the "profit" you describe is a formally declared dividend by the company then there should be no withholding as such dividends are treated as being tax paid in the hands of a foreign resident, although it may be necessary for him to demonstrate that he is not UK-tax resident. This is best achieved by providing a Certificate of Tax Residence (or equivalent) from the fiscal authority of the country in which he is claiming tax residence.

If the "profit" is not a dividend, but interest from a loan note or mortgage debenture then this should be treated as income in the hands of your client and a 20% withholding tax may indeed be appropriate.

The first question I would be asking the UK company, is what is the statutory basis for the withholding?, this will then allow you to understand if the withholding can be prevented for future transactions, reclaimed or used as a reduction from taxation in the clients country of residence under a double taxation agreement.

You have not provided sufficient information for us to determine the nature of the investment, the repayment / profit-share / interest or given us the tax residence and citizenship of your client, all of which are necessary to provide guidance upon this subject.

 

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