Withholding Tax on Interest Payment to Resident Non-Bank or Saving Institution Taxpayers
Withholding Tax on Interest Payment to Resident Non-Bank or Saving Institution Taxpayers is taxable at 15%. If your company borrows loan from friend, family or other companies except borrowing from banking institution, so you must withhold tax before payment of interest to them.
Example 1
Assume that ABC Company borrows $20,000 from Mr.A. Mr.A is friend of ABC’ owner and interest rate is 1% per month.
Required
Calculate withholding tax if any.
Answer
Interest = $20,000 x 1% = $200
Withholding tax on interest payment = $200 x15% = $30
ABC will pay $170($200-$30) to Mr. A (if Mr. A allowed ABC Company withhold tax from him), and ABC will pay tax of $30.
Example 2
XYZ Company expands its business, and company faces financial problem, so company borrowed from different sources from resident lenders as follows.
- Bank K of $20,000
- Owner’s family of $10,000
- Relatives of $5,000
- Friends of $5,000
- Company KHL of $10,000
Assume interest rate per month is 2%.
Required
Calculate withholding tax if any.
Answer
Total interest subject to withholding on interest = (10,000 +5,000+5,000+10,000) x 2%=$600
Withholding on interest = $600 x 15% =$90
Note: interest payment on Bank K is not subject to withholding tax on interest.