A non-resident is taxed on UK-source income.
When a company pays yearly interest (
INTM505020) to a non-UK resident, it
is obliged to deduct income tax from the payment and account for
that tax to HM Revenue & Customs in accordance with
ICTA88/S349(2)(c). This obligation can be removed or changed if the
benefits of a double taxation agreement are successfully claimed -
and from 1 April 2004 by making a claim under ICTA88/SCH28AA/ PARA
6C (for details see
INTM560000 onwards.).
The tax is the liability of the non-resident recipient:
deduction from payment is the collection mechanism for income taxes
on non-residents who do not have a taxable presence in the UK. Tax
relief for the payer is not directly linked to the question of
whether the non-resident recipient is taxed on their UK source
income.
The following guidance explains how the general rule for
deducting income tax from payment of cross-border interest applies
and describes the exceptions to and exemptions from the obligation
to deduct.
In particular, where interest is paid cross-border, double
taxation agreements may provide for exemption from UK tax or for a
reduced rate of UK tax. The non-resident recipient must make a
formal application for exemption or for the reduced rate (see
INTM505030 for further details).
