From 1 January 2021 companies in the EU will begin to impose withholding tax on cross-border transactions - such as payments of dividends, royalties and interest - with UK associated companies. The change comes about post-Brexit, as the EU Directives that removed the charging of withholding taxes on various cross-border transactions between associated companies no longer apply.
From now on, payments of dividends, interest and royalties between UK and EU companies are governed by the payer's domestic law, or possibly mitigated under the terms of the appropriate Double Taxation Agreement.
A number of EU jurisdictions are likely to make amendments to their domestic law to ensure that the Directive rules will continue to prevail. For the moment, the table below sets out a summary of the current domestic/treaty rates that are applicable to such transactions.
All UK companies party to cross-border transactions with EU associates should now review their withholding tax position to ensure compliance with the new regime and consider making applications under the relevant tax treaty to mitigate the levels of tax to be withheld.
For further advice or assistance in making withholding tax applications, please contact Mike Chapman, Tax Partner, on 01273 480480.
Withholding taxes table