If you’re an author or writer receiving royalties from overseas, there’s a good chance that you’re having tax deducted from your income in the country of origin before it gets to you. This is called ‘withholding tax’.
Depending on double taxation agreements (these vary between countries) you may be able to reduce or eliminate the withholding tax taken from you. For some countries you will need to provide a letter called a ‘certificate of residence’ to confirm that you were resident in the UK for a particular period. Apply here.
A claim to reduce the withholding tax is always worth doing if the amount of withholding tax will be more than the tax you’ll pay in the UK.
But what if the rate of withholding tax is lower than the UK tax you’ll pay? For example, Germany have a rate of withholding tax of 15.825%. A UK basic tax rate payer pays tax at 20% so will end up paying the HMRC 4.175% extra tax to bring the total up to 20%. If a claim is made to reduce German withholding tax to nil then HMRC would need to be paid 20%. Either way, the tax suffered is 20%.
So why should you bother claiming to reduce your withholding tax if the end result is going to be the same amount of tax being paid?
Because, if you don’t then the overseas country will pocket the tax paid on your income, not the UK. This means that it will be overseas infrastructure that your hard-earned cash will be paying for and not that of the UK. The country in which you are resident and would arguably benefit from the expenditure.
If you have any questions regarding this topic, send me an email.
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