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Withholding tax and what this means post-Brexit

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The EU Interest and Royalties Directive ceased to apply to the UK when the Brexit transition period expired on 31 December 2020. Provided certain conditions were met, this allowed dividends, interest, and royalties to be paid without withholding tax within the EU. This applied to both payments to and from UK companies.

The withdrawal from the EU means withholding tax could now apply to dividends, interest, and royalties to and from the UK which did not apply before 1 January 2021.

UK legislation continued to apply so that there would be no UK withholding tax on payments by UK companies where the payment would have fallen within the EU directive. However, this relief is to be withdrawn from 1 June 2021. For payments made on or after this date, there will be no exemption from UK withholding taxes on payments of annual interest and royalties arising in the UK.

There is no UK withholding tax on dividends paid in any event. However, there is a UK withholding tax of 20% on most interest and royalties paid to individuals and non-UK resident companies. This rate can often be reduced by making a claim under the relevant double tax treaty.

Therefore, it would be necessary to check the relevant tax treaty to determine what the withholding tax position will be going forward. Our Corporate and Business Tax Director, David Hadley, would be able to advise on this.

David Hadley tax director

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