Are withholding taxes relevant to individuals and, if so, how, in what circumstances and at what rates do they apply?
Private Client (2nd edition)
Any payment of income made to Israeli individual is subject to withholding. The rates vary in accordance with the type of income. In addition, any Israeli person making a payment to a non-Israeli resident must withhold tax at the rate of 25% from any income chargeable with tax under the Ordinance, unless it is subject to tax withholding under other provisions of the Ordinance. The tax rates are subject to the applicable double tax treaty, if any, signed between Israel and the state of residency of the individual. It is necessary to apply upfront to the Israeli tax authorities for a tax withholding exemption in accordance with the provisions of the relevant double tax treaty or Israeli tax laws.
Pay-As-You-Earn (“PAYE”) – Employed persons are subject to a form of withholding tax called PAYE in respect of their employment income, such that income tax is deducted at source.
Dividend Withholding Tax (“DWT”) - DWT applies at a rate of 20% on the payment of certain dividends. An exemption from DWT may be available where the recipient individual is resident in another EU Member State or in a jurisdiction with which Ireland has a DTA, in
Deposit Interest Retention Tax (“DIRT”) – DIRT at a rate of 35% (2019) is deducted at source by deposit takers from interest paid or credited on deposits. A non-Irish resident can receive Irish deposit interest free from DIRT.
A buyer must withhold CGT when paying consideration in excess of EUR 1 million to a seller in relation to the sale of certain assets, mainly Irish immoveable property, and pay the tax withheld to the Revenue Commissioners.
In principle, income from movable property is subject to withholding tax if paid in Belgium. Since 1 January 2017 a rate of 30% applies to most dividends and interests.
Employers must withhold withholding tax on the wages and salaries they pay to their employees.
Withholding is required for US Persons and nonresidents on all salary income earned in the US. There is no set withholding rate, but generally withholding must be sufficient to cover 90% of income tax for the year to avoid an interest charge. Self-employed individuals and salaried individuals with other non-salaried income (such as bank interest, dividends, royalties, etc) are not required to withhold income taxes on such income, but must pay estimated taxes on a roughly quarterly basis. For nonresidents, there is a 30% withholding (15% under certain tax treaties) on most US-source interest, dividends, rental and royalty income. Interest on bank deposits is not subject to withholding.
There is a PAYE system for salaries. Subject to certain exemptions, SDC tax must be deducted at source from dividend and interest payments and certain rents and accounted for to the Tax Department.
Cyprus does not impose withholding taxes on interest, dividends or most royalties paid to non-residents.
Royalties paid to non-residents are subject to withholding tax at 10 per cent (or 5 percent in the case of cinema films), but only if they relate to the use of the intellectual property asset within Cyprus.
In particular with respect to investment income involving, a withholding tax applies generally amounting to 27.5% (in special cases such rate is reduced to 25%). Equally, income tax on salaries and wages is imposed by way of a wage withholding tax.
In Bulgaria, withholding tax (referred to as final tax) is levied on individuals, both resident and non-resident.
Withholding tax on the income of residents is triggered by the category of the income. The categories of income subject to withholding tax are detailed in the law and include but are not limited to dividends, interest on bank accounts, income deriving from the exchange of shares, etc.
Withholding tax on the income of non-residents is triggered by the source of the income, as well as by its category. Source is determined by reference to the payer, e.g. a resident person or a Bulgarian permanent establishment / fixed base, trade representative office in the country. Categories of income subject to withholding tax include but are not limited to interest, royalties, income from management and supervision or from participation in the managing and supervisory bodies of companies; rental income, service fees, franchising and factoring fees, etc.
Of note is that withholding tax is also levied on penalties and compensations of any nature (except for compensations under insurance contracts) sourced in Bulgaria and accruing to the benefit of non-residents established in preferential tax regime jurisdictions.
The applicable rates of withholding tax are 5 % (dividends), 8 % (interest on bank accounts), 10 % (on other income chargeable to withholding tax).
Non-residents paying withholding tax are entitled to ask for a recalculation of the tax paid on all Bulgarian sourced income and have it calculated as if it had been derived by a resident. The reason is that, as a general rule, non-residents pay withholding tax on a gross basis, while residents paying tax on the same categories of income are levied on a net basis. The recalculation regime is applicable only to individuals resident in an EU or EEA Member State.
Both resident and non-resident individuals are subject to a Withholding Personal Income Tax Regime.
As a general rule, a resident will be subject to withholding tax for certain Argentine sourced income (such as employment income, dividends distributed by an Argentine non listed Company, etc) and may be subject to withholding tax in other countries which the given individual will compute in their income tax return (Tax Credit) as far as the requirements under Section 168 ITL are met, that is, it must be an "analogous national tax" and it must have been "effectively paid in the countries in which such gains were obtained". The amount to be computed as tax credit cannot exceed the increase in the global tax generated by the incorporation of income from a foreign source. The non-computable portion for exceeding the indicated limit may be deducted from the net tax from a foreign source obtained in the following five fiscal periods (Section 178 ITL). Once this period is over, accumulated tax credit cannot be computed.
For resident individuals, the General Resolution 830 (hereinafter “GR 830”) establishes which parties are required to act as withholding agents, among others:
- Financial Entities
- Individuals and undivided estates, only when payments are made as part of their business or service activity.
The GR 830 establishes that the withholding tax must be practiced at the moment in which the payment, distribution or liquidation of the amount corresponding to the concept subject to withholding is made.
A non-resident individual receiving any Argentine sourced income will be subject to a withholding tax. The tax rate and the withholding applicable regime, will vary according to the source and type of income involved.
Section 92 of ITL establishes that incomes received by foreign beneficiaries are generally subject to 35% income tax withholding. In addition to this, Section 93 ITL presumes a fixed level of net income (presumed income) to which the 35% income tax withholding rate applies, such as:
- The 70% of the amount paid as salaries, fees, and other compensations of individuals domiciled in the Argentine Republic for no more than six months in the taxable year will be presumed net income and will be applicable the 35% tax withholding rate, being 24,5% the effective tax withholding rate.
- The 60% of the amount paid for rental of an Argentine real property will be presumed net income and will be applicable the 35% tax withholding rate, being 21% the effective tax withholding rate.
- The 90% of any other payment not contemplated in particular in Section 93 ITL will be presumed net income and will be applicable the 35% tax withholding rate, being 31,5% the effective tax withholding rate.
With the enactment of Law 27.430 (December 2017) which modifies the ITL, many changes concerning income tax on capital gains and interest, have been introduced.
Before the enactment of Law 27.430, the ITL in Section 20 w) provided an exemption for the results from sale, transfer or disposition of shares, participations, bonds and other securities obtained by individuals and undivided estates located in Argentina, whenever they were listed on stock exchanges or securities markets and had public offer authorization. Also, in Section 20 k), ITL established the exemption to gains derived from shares, bonds, letters and other obligations issued by official entities.
The tax reform limits the exemption provided in Section 20 w) by establishing that only the results from sale, transfer or disposition of shares, securities representing shares and certificates of deposits that are carried out through stock exchanges or stock markets authorized by the Argentine Securities and Exchange Commission (CNV for its acronym in Spanish) will be exempt. It also established that the mentioned exemption will apply to foreign beneficiaries as long as they do not reside in and/or the funds do not come from non-cooperative jurisdictions. In the case of foreign beneficiaries, Section 20 w) also exempt interest received and capital gains from the following securities:
- Public securities issued by the National, Provincial, Municipal or the City of Buenos Aires governments
- Negotiable obligations and representative shares or deposit certificates shares
- Other securities provided that such securities have been issued by entities domiciled or located in Argentina
The exemption will not apply for Argentine Central Bank Notes (LEBACS, LELIQ, LECAP, etc.).
The changes introduced by the Tax Reform, have been regulated by different Regulatory decrees and General Resolutions issued throughout the year 2018. In particular, Regulatory Decree 279 (published on the Official Gazette on April 2018), General Resolution 4227 (published on the Official Gazette on April 2018) and Regulatory Decree 976 (published on the Official Gazette November 2018), have a major impact on the treatment on incomes received by foreign beneficiaries:
(a) Financial Investments:
- Regulatory Decree 279, extends the aforementioned in relation to the net income that is presumed to be Argentine source (Section 93 ITL), clarifying that for incomes derived from LEBACs (Argentine Central Bank Notes) the presumed percentage for Argentine-source income is 100% and a 5% tax rate applies to that income.
- General Resolution 4227 established the mechanism for non-resident investors to pay income tax on interest and capital gains.
- A 5% withholding tax rate applies to investments in Argentine Pesos (ARS) without an adjustment clause (e.g., a clause to adjust for inflation).
- A 15% withholding tax rate applies to investments in ARS with an adjustment clause or investments denominated in foreign currency.
- The Argentine banks for interest arising from term deposits in Argentina banks
- The entities having in custody Argentine Central Bank Notes
- The parties that pay the interest arising from investments in negotiable obligations, certain common investments funds, debt titles of financial trusts and similar contracts, bonds, and certain other investments
- The depositary company or the integral placement and distribution agent (ACDI for its acronym in Spanish) for participations in common investment funds
- Argentine Central Bank Notes, negotiable obligations, debt securities and other securities without an adjustment clause: A 5% withholding tax rate applies
- Argentine Central Bank Notes, negotiable obligations, debt securities and others securities with an adjustment clause: A 15% withholding tax rate applies
- Shares listed on stock exchanges or securities markets authorized by the Argentine Securities and Exchange Commission that do not meet the requirements referred to in Section 20 w) (exemption) or that are not listed in the aforementioned stock exchanges or markets (non listed Argentine Companies): A 15% withholding tax rate applies.
- The purchaser, if this is a resident.
- The entity that exercises the custody in the case of Argentine Central Bank Notes and other securities quoted in public offer authorized by the National Securities Commission
- The legal representative domiciled in Argentina when the purchaser is also a non-resident. If there is no legal representative domiciled in Argentina, the tax must be paid by the seller (foreign beneficiary) through international transfer wire (expressed in USD or Euros). Before the enactment of Law 27.430, if the purchaser and the seller were both non-residents, the payment of the tax was the responsibility of the purchaser.
When the non-resident individual receives interest on bank deposits, government bonds, negotiable obligations, Argentine Central Bank Notes, term deposits and other securities will be subject to:
The following parties will be required to act as withholding agents:
When the non-resident receives incomes from sale of financial investments will be subject to the following tax rate depending on the type of asset:
The following parties will be required to act as withholding agents:
The rates apply on a 90% presumed net income, unless the beneficiary of the income wishes to apply the rates to the actual net income.
If the non-resident wishes to apply the 90% presumed income tax rate on the income received, the effective rate will be 4,5% and 13.5% instead of 5% and 15%.
(b) Sale of Real Property
Regulatory Decree 976 regulates the sale of real property establishing that:
- A 1.5% withholding tax (Real Property Transfer Tax, ITI for its acronym in Spanish) upon the sale of real property situated in Argentina, whenever the real property sold was acquired prior to January 2018. The non-resident shall obtain from AFIP a certificate known as “Certificado de retención ITI” in order for the notary taking part in the public deed (withholding agent) to withhold the sum indicated in the said certificate; or
- A 15% withholding tax (Income Tax on capital gains) upon the sale on real property situated in Argentina, whenever the real property sold was acquired on or after January 2018. In case the seller is a non-resident and the buyer is an Argentine resident, such buyer must withhold and pay the tax and, if both parties are non- residents, the tax must be directly paid by the transferor, either personally or through its legal representative in the country.
(c) Dividends distributed non listed Argentine Companies
Law 27.430 modified Section 46 of ITL introducing a withholding tax applicable to residents and non-residents which received dividends distributed from non-listed Argentine Companies. For distributions from income generated in 2018 and 2019, the applicable rate will be 7%; for distributions from income generated in 2020 and subsequent periods the applicable rate will be 13%.
(d) Tax on indirect transfer by non- residents of argentine situs assets
The income received by a non-resident which derives from the sale or transfer by of shares or other participations in foreign entities when at least 30% of its value derives from assets located in Argentina, will be taxable. The applicable tax rate must be determined in the same way as established in GR 4227 for capital gains (see (a) Financial Investments, GR 4227, Capital Gains)
Individuals domiciled in Monaco are not subject to income tax (except for French citizens who are taxable in France as if they were resident there), therefore withholding taxes do not apply.
Final withholding taxes generally apply to income and gains from financial assets. Such withholding taxes are generally levied at the 12.5% rate for income and gains from public bonds issued by Italy or white listed States, and at the 26% rate for income and gains from most of the other financial assets. However, certain financial assets do not qualify for final withholding taxes: this is the case for e.g. non-EU investment funds.
There is no withholding tax in Bermuda.
3.1 Income tax (§2.1) and national insurance contributions (§2.5) are generally deducted at source from the income of an employment. The obligation to make these deductions normally falls on the employer, but many employers delegate compliance with this regime to an agent. An employee who has suffered such deductions at source does not normally have to file a tax return unless he has other kinds of income or capital gains for the tax year (§2.13).
3.2 Income tax (§2.1) must prima facie be deducted from payments of rent for UK real property to a non UK resident (§1.5-1.7) landlord. However, under an arrangement known as the "non-resident landlord scheme", it is possible for such a landlord to apply to HMRC to receive the rent gross, provided that he can satisfy HMRC that he has complied with all his UK tax obligations, including the obligation to file tax returns and pay the income tax due on the rent.
3.3 Income tax (§2.1) must generally be deducted at source from royalty payments.
Yes. They are. As a mean to collect income taxes in advance, Colombian law estab¬lishes a system of income tax withholdings that requires every per¬son making payments to a taxpayer to withhold a certain percentage, depending on the income characterization being paid. For those who must file an income tax return, all amounts withheld or self-withheld are a prepayment of the final tax liability and as such are credited on their income tax return.
The following payments made to individuals are subject to tax withholdings:
Provision of services
4% to 6%
6%, 10% and 11%
Salary income tax withholdings are calculated based on the applicable taxation rate (0 to 39%) of the individual.
Income tax withholding rates applicable to payments abroad (non-resident individuals not required to file an income tax return in Colombia) are as follows:
General management fees
Technical services, technical assistance, consulting services, royalties, leases, commissions, fees, software exploitation and, in general all services.
Credits obtained abroad for a term of 1 year or more
There are no income or withholding taxes imposed on individuals in the Cayman Islands.
A withholding tax of 26,375% (+ church tax where applicable) will apply to dividends paid by German corporations and income or gains from capital investments in custody with a German bank. Also salaries for dependent services are subject to withholding tax at the rate of the prospective individual tax rate. Where a non-resident receives income from German sources, withholding taxes may apply in certain other cases (e.g. income from licensing or board memberships).
Certain income paid to non-resident recipients is deemed Singapore-sourced and subject to withholding tax. Of particular relevance to a non-resident individual recipient are –
- Income of a non-resident professional attributable to certain services rendered in Singapore is subject to withholding tax at 15% of gross income or 22% on net income, if the income is borne by a Singapore establishment.
- A director's remuneration received from a Singapore establishment is subject to withholding tax at 22%.
Depending on the tax residence of the recipient, the above-said withholding tax obligations may be modified by a tax treaty between Singapore and the jurisdiction of residence. Singapore has in force over 80 comprehensive tax treaties.
Income paid by Portuguese entities is, usually, subject to PIT withholding in Portugal. In general, employment income received by Portuguese tax residents is subject to withholding at progressive and marginal tax rates annually fixed by the authorities. On the other hand, employment income received by Portuguese non-tax resident is subject to a fixed 25% withholding tax rate. On the other hand, investment income is subject to a withholding tax rate of 28%. Payments to lower tax jurisdictions are subject to an aggravated 35% rate.
Traditionally, French resident taxpayers have reported in their annual return their income received during the preceding year. The tax bill was assessed by the French tax authorities and paid in three instalments during the following year the income was received.
This tradition is progressively repealed. Social contributions on wages and salaries are already levied by the employer, dividends and interest are subject to withholding taxes which are considered as a prepayment of income tax. Some capital gains on the sale of real estate properties or on the sale of securities and shares are also subject to withholding tax upon the sale.
Finally, as from January 1st 2019, employment income, pensions, self-employment income and rental income will also be subject to withholding taxes considered as prepayment for income tax purposes.
As already developed in §2.2. non-resident taxpayers are subject to withholding taxes at rates varying depending on the nature of income or capital gains received.
Employers are required to withhold wage tax. Rates are different for singles and married couples and are increasing depending on income.
Payments to board members of Liechtenstein entities are subject to 12% WHT.
No WHT on interest, dividends and royalties.
Withholding is relevant for income tax purposes, since the pay or could be obliged to withhold taxes in certain cases. Among the main cases, we can enlist the following:
- In the case of salaries, employers (whether entities or individuals) shall withhold and pay income tax for the payments made to their employees. This income tax shall be withheld and paid monthly applying the monthly rate (up to 35%, as explained before) established in the article 96 of the Mexican Income Tax Law, and it is an advance payment of the annual tax. It is important to mention that our Law establishes in article 94 several cases in which it is considered that an individual receives an income that can be deemed as a salary, and in all of them the tax shall be paid through a withholding made by the person making the payment.
- According to the article 106 of the Mexican Income Tax Law, if an individual performs business and professional activities, and he renders professional services to an entity, that entity is obliged to withhold, as advance payment, the amount resulting of applying a rate of 10% over the payments made by the entity to the individual.
- According to article 116 of the Mexican Income Tax Law, when an individual obtains income for leasing real estate to an entity, such entity is obliged to withhold the 10% of the total amount paid to the individual, as an advance payment of income tax, and without the possibility to make any tax deductions.
- According to article 126 of the Law, if an individual sells any goods and it is a transaction registered in a public deed, the advance payment shall be made within the next 15 days as of the signing of such public deed. The certifying public officer shall calculate and pay the income tax under his responsibility and issue the tax receipt with the corresponding withhold of taxes. Tax could be up to 35% of the profit received by the individual.
- Regarding the sale of other goods, the advance payment shall be the result of applying the rate of 20% over the total amount of the transaction and shall be withhold by the buyer if he is a resident in Mexico or if he is a resident abroad with a permanent establishment in Mexico. Some alternatives may apply when shares are being sold, in which the advance payment could be up to 35% on the profit.
- If an individual obtains income from interests and the institution who makes the payment is part of the financial system, this institution shall withhold the tax as an advance payment applying the withholding rate of 1.04% per annum, applied on the amount of capital that originates the payment of the interests. In the event that the pay or of the interest is not part of the financial system, the withholding rate could increase up to 35%.
- If an individual receives an income from awards, such as lotteries, raffles, bets and contests, the pay or is obliged to withhold taxes, which, according to article 138 of the Mexican Income Tax Law, shall be calculated applying a rate of the 1% over the total price amount corresponding to each ticket, without any deduction, as long as the federal entities do not tax locally the above mentioned income sources or such tax is below the 6%. The tax rate shall be 21% in those federal entities that apply a local tax over such income sources with a rate above the 6%.
- Regarding incomes obtained by individuals coming from dividends and other earnings coming from entities, individuals are subject to a rate of the 10% over such dividends distributed by the entities, being the Mexican entities obliged to withhold and pay the tax.
Finally, and regarding Value Added Tax, according to article 1-A of the Mexican Value Added Tax Law, individuals are obliged to withhold value added tax regarding the acquisition or temporary use of tangible goods, alienating or granting residents abroad without permanent establishment in Mexico.
Entities shall withhold value added tax to individuals when individuals render personal services or when they give the entity the temporary use or enjoy of goods.