Withholding tax on interest on corporate debt

This table sets out a summary of the key information concerning the withholding tax requirement on interest on corporate debt for each of the 11 jurisdictions covered in the country Q&A section under the Tax on Finance Transactions headings.

Jurisdiction

What is the withholding tax requirement on interest on corporate debt?

What are the key exemptions (ignoring double tax treaties)?

What is the rate?

Canada

Withholding tax applies to:

  • Interest paid or credited to a non-arm's-length non-resident.

  • Participating debt interest.

The following are fully exempt:

  • Interest on debt issued by governmental entities, certain tax-exempt entities and certain international organisations.

  • Non-deductible interest on mortgages on real property situated outside Canada.

  • Interest on certain securities lending arrangements).

  • Interest (other than participating debt interest) paid or credited to an arm's-length non-resident.

25%

France

Interest paid by a French debtor to a non-French tax resident is subject to French withholding tax.

An exemption is available for French companies borrowing from non-French lenders if certain conditions are met (Article 131 quater, FTC).

An exemption is available to EU companies subject to corporate tax and meeting conditions of shareholdings, subject to anti-avoidance provisions (EU Interest and Royalties Directive (2003/49/EC)).

18%

Germany

There is generally no withholding tax requirement on ordinary corporate debt.

Withholding tax is due on:

  • Bonds granting additional conversion rights into shares (Wandelanleihen).

  • Bonds granting interest dependent on the debtor's dividend distributions (Gewinnobligationen).

  • Jouissance rights granting participation in profits and liquidation proceeds (Genussrechte).

  • Collective bonds (section 9, Securities Deposit Act) (Depotgesetz).

  • Partial debentures (Teilschuldverschreibungen).

  • Interest payments made by domestic banks or financial services institutions as borrower.

25%

Japan

 

 

Withholding tax must be paid on interest on loans paid to a non-Japanese resident or a foreign corporation.

Exemptions exist for:

  • Interest paid to a non-Japanese resident or a foreign corporation that has a permanent establishment in Japan (subject to certain procedural requirements).

  • Interest paid to a foreign corporation by a financial institution on a deposit or debt recorded in a special international financial transaction account.

20%

Withholding tax must be paid on interest on bonds paid to a Japanese resident or a Japanese corporation.

Exemptions exist for:

  • Interest on bonds received by securities investment trusts, special purpose trusts and pension trusts.

  • Interest paid on bonds recorded under the Law Regarding the Recording of Bonds to financial institutions.

20%

Withholding tax must be paid on interest on bonds paid to a non-Japanese resident or a foreign corporation.

An exemption exists for interest on a corporate bond issued outside Japan by a Japanese company that is paid to a foreign corporation, as long as such interest is paid outside Japan.

15%

Latvia

Interest paid to non-resident related parties is subject to withholding tax.

Interest paid to third parties is not subject to withholding tax.

10% or 5% for banks (from 1 July 2009 the rate is reduced to 5%, and from 1 July 2013 it will be eliminated for qualifying EU companies).

Norway

There is no withholding tax on domestic or cross-border interest payments to companies. The same applies to other payments under a loan.

Not applicable.

Not applicable.

Russian Federation

Interest that a Russian borrower pays (including income from bonds) to a foreign lender is subject to withholding tax. No withholding tax applies on interest payable by one Russian company to another.

There are generally no exemptions, but lower rates are available for income from:

  • Certain mortgage-backed bonds.

  • State and municipal bonds.

  • Hard currency denominated state and municipal bonds issued in 1999 to borrow money to repay the internal hard currency debt of the USSR and the Russian Federation.

General rate: 20%.

Income from certain mortgage-backed bonds: 15% and 9%.

Income from hard currency denominated state and municipal bonds issued in 1999 and some other state and municipal bonds issued on or before 20 January 1997: 0%.

Singapore

The Singapore payer must withhold tax on interest and other payments relating to loans or indebtedness to non-residents.

Payment made to a Singapore branch of a non-resident bank, where the Singapore branch has been granted waiver from compliance with Singapore withholding tax by IRAS.

Interest paid to a non-resident for a loan obtained from outside Singapore for acquiring an overseas immovable property.

Interest paid on interbank and interbranch transactions by approved banks in Singapore. An approved bank need not withhold tax when paying interest to its branches, head office, or to another bank outside Singapore, whether the recipient bank has any permanent establishment in Singapore.

15% unless interest is connected with the non-resident's permanent establishment, in which case it will be taxed at 17%.

South Africa

N/A

 

 

UK (England and Wales)

Tax must be withheld on annual interest with a UK source.

There are various exemptions, including interest paid:

  • On quoted eurobonds.

  • To recipients that are liable to UK corporation tax on the interest.

20%

United States

Tax must be withheld from payments to foreign persons of US source interest and original issue discount when a debt obligation is redeemed or transferred, unless an exemption applies.

The most important exemptions are for:

  • The portfolio interest exemption.

  • Bank deposit interest.

  • Interest treated as connected to a US trade or business.

30%

 
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