Generally, however, withholding tax is levied on dividends and
other distributions as well as certain other specified payments
such as interest, rentals, royalties, management charges
and fees for technical services. Withholding tax applies only
to payments that are revenue in nature rather than capital.
Further, withholding tax is not applicable to payments in
respect of goods.
While withholding tax is a tax on the non-resident recipient,
the onus is on the resident payer to deduct and remit the
tax to the Tax Authority. Failure to do so may result in the
imposition of penalties and interest.1 The relevant legislation
may also prohibit any tax deduction in respect of payments
that are subject to withholding tax unless the applicable
withholding tax has been paid to the Tax Authority.
Accordingly, the following ingredients must generally be
present for the imposition of withholding tax:
• The recipient of the payment must be a non-resident
• Withholding tax is levied on distributions and certain
specified payments as defined in the taxing statutes
• The recipient must not be engaged in a trade or business
in the jurisdiction
• In certain countries, such as Trinidad and Tobago, there
is a further requirement that the payment must arise in
the jurisdiction in order for withholding tax to apply
In recent times, we have noted an increased scrutiny by Tax
Authorities in the region with regard to payments made to
non-residents. Such increased scrutiny must be viewed in the
context of declining or stagnant tax revenues from traditional
sources such as income tax, corporation tax and value added
tax as a result of the challenging economic conditions
currently prevailing throughout most of the region. In the
circumstances, foreign investors should pay particular
attention to the withholding tax implications associated with
outflows from the region.
We note here that the meaning of the term “payment
arising” has been the subject of some contention between
the Trinidad and Tobago Tax Authority and taxpayers. Based
on the relevant authorities, however, what appears to be of
crucial importance is whether the transaction or activity,
which has given rise to the payment, has been effected or
performed inside the country.
Wade M. George
Wade leads our Caribbean tax practice. He specializes in the area of
corporate international tax advisory services and his experience includes
an international assignment with the Ernst & Young International Tax
Services Group in New York. Wade has over 20 years experience in
developing and implementing tax minimization planning structures in
Jamaica, Trinidad and Tobago, Barbados and The OECS, including
mergers and acquisitions, green-field projects and capital markets
transactions. He has been involved in tax engagements for a variety of
multinational clients of the firm in various industries such as financial
services, heavy manufacturing and telecommunications. He has spoken
extensively on international tax matters in London, New York and
Toronto.
Nassim Mohammed
Nassim is an Attorney-at-Law who spent over 15 years in the Legal Section
at the Board of Inland Revenue in Trinidad & Tobago. He has extensive
tax experience having represented the Board of Inland Revenue at the Tax
Appeal Board, High Court and Court of Appeal. He was also the primary
legal advisor to the Board of Inland Revenue on legislative issues. He spent
three years as the Legal Advisor to the VAT Administration Centre.
Nassim was a member of the Permanent Double Taxation Team, which
advises Government on the negotiation of international tax treaties.
Nassim was also a member of several Cabinet appointed committees
involved in issues such as the establishment of a Revenue Authority in
Trinidad & Tobago and a review of Employee Share Ownership Plans.
Taxing statutes in the region prescribe varying rates of
withholding tax. In Trinidad and Tobago, for instance, the
following rates of withholding tax are prescribed in the
Income Tax Act:
(i)
On distributions made to parent companies – 5%
(ii)
On other distributions – 10%
(iii) On certain statutorily defined payments – 15%
It should be noted, however, that double taxation treaties
may provide for lower, preferential rates of withholding tax
on payments of dividends, interest, royalties and charges for
managerial and technical services. Where there is a treaty
in existence between the country of residence of the payer
and the country of residence of the recipient, the rate of
withhol