Withholding Taxes

Q. Following Brexit, where do we stand with withholding taxes on payment between UK and EU companies?

A. Following the end of the Brexit transition period, companies no longer have the benefit of automatic exemption from withholding taxes on payments between the UK and EU member states on dividends, interest and royalties under the EU Interest and Royalties Directive.

For payments made from UK companies to associated companies in EU member states, there should be no withholding taxes on payments of dividends, interest or royalties because the UK has implemented the EU interest and royalties directive into UK law.

However, the position is not as straightforward for payments made from EU member states to UK companies. Since 1 January 2021, following the end of the transition period, withholding taxes are potentially due on payments of interest, dividends and royalties from EU member states to UK companies.

Relief for withholding taxes may be available in accordance with the double tax agreements between the UK and each member state. UK companies receiving payments from EU member states should therefore review all payments to ascertain whether there will be any irrecoverable withholding taxes, or if there is a treaty in place which reduces withholding tax liabilities, to ensure that any relevant claims or applications are made.

The position is likely to change in the coming months as the EU continues to scrutinise the Agreement and EU member states may introduce legislation on withholding tax on payments to UK companies.