Withholding Tax Guide

1. Overview

   Under Section 50(1) of the Income Tax Act, Chapter 75:01, Withholding Tax is applied to distributions and payments made to any person or company who is neither resident nor engaged in trade or business in Trinidad and Tobago. The Trinidad and Tobago individual/company (the payer) is responsible for deducting this tax from the payment and remitting it to the Inland Revenue Division except where the payment arising outside Trinidad and Tobago.

2. Applicable Tax Rates

   The rates of Withholding Tax are set out in the Third Schedule of the Income Tax Act. The specific rate depends on the type of transaction and the relationship between the companies.

   Transaction Type	Recipient Status	Tax Rate
   Distributions	Parent Company*	3%
   Payments	Individual (Non-Company)	15%
   Payments	Company	15%

   * Note: A "Parent Company" usually refers to a non-resident company that has a controlling interest in the local company paying the dividend, allowing it to manage and influence its operations. Usually, a Parent Company has over fifty per cent of the voting power.

   Double Tax Treaties: If a treaty exists between Trinidad and Tobago and the recipient's country, these rates may be reduced as may be therein provided. Please refer to the Withholding Tax Rate Sheet.

3. Distribution vs. Payment

   To apply the correct tax rate (3%, 8%, or 15%), you must determine if the transaction is a "Distribution" or a "Payment." The Income Tax Act defines these separately.

   1. Meaning of "Distribution" (Section 49)

      The meaning of Distribution is set out in Section 49 of the Income Tax Act.

      • this category primarily covers dividend and other transfers of profits/assets to shareholders

      • Applicable Rates: 8% (Standard) or 3% (Parent Company), unless reduced by Treaty.

   2. Meaning of "Payment" (Section 51)

      Section 51 defines a Payment as the gross amount (without any deductions whatsoever) for specific types of transactions other than a distribution.

      • Applicable Rate: 15% (Standard), unless reduced by Treaty.

      Qualifying Payments include:

      1. interest, discounts, annuities or other annual or periodic sums;
      2. rentals;
      3. royalties;
      4. management charges or charges for the provision of personal services and technical and managerial skills;
      5. premiums (other than premiums paid to insurance companies and contributions to pension funds and schemes), commissions, fees and licences;
      6. such other payment as may from time to time be prescribed.

4. The "Gross Amount"

   Section 51 explicitly states that "payment" means a payment "without any deductions whatsoever."

   When calculating the Withholding Tax on Section 51 payments, you must apply the rate (e.g., 15%) to the gross invoice value before subtracting any expenses such as bank charges, wire fees, or other costs before calculating the tax.

Withholding Tax: Penalty and Interest

Strict statutory deadlines apply to the remittance of Withholding Tax. Failure to adhere to these deadlines results in penalties and interest as outlined in the Income Tax Act.

• Deadline for Payment (Section 50(2)): Withholding tax must be remitted to the Board of Inland Revenue (BIR) within 30 days of the payment or distribution being made to the non-resident.
• Liability for Offence (Section 50(4)): Any person who fails to pay the withholding tax is liable to an offence, triggering the provisions of Section 99(4).
• Penalty and Interest Calculation (Section 99(4)): If a person fails to deduct or withhold, they are guilty of an offence. The financial implications are:
  • Penalty: A sum of 25% of the unpaid amount (or $40.00, whichever is greater).
  • Interest: Interest at a rate of 20% per annum.

Calculation Example

Scenario: A non-resident company (Non-Parent) is paid $10,000 for Technical Services.

Classification: This is a "Payment" (Section 51), not a "Distribution".

Rate: 15%.

1. Gross Amount: $10,000;
2. Tax to Withhold: $1,500 ($10,000 x 15%);
3. Payment to Vendor: $8,500;
4. Payment to IRD: $1,500.

How to file and pay?

The Form C5/WHT2 accompanies payments. Taxes must be settled in Trinidad and Tobago Dollars by either cash, cheque or linx.

A person making a payment can either:

• Physically file the C5 form at the customer service counter or
• Use the e-Tax portal where registered companies can process declarations and file electronically via the IRD’s e-Tax platform.

Summary Checklist

Before making a foreign transfer:

1. Is the recipient a Non-Resident?
2. Identify the Category:
   • Is it a Distribution (as per Section 49)? Apply 8% or 3%.
   • Is it a Payment (as per Section 51)? Apply 15%.
3. Check for Treaties: Is there a Double Taxation Agreement that lowers the rate?
4. Calculate: Apply the withholding tax rate to the Gross Amount.

Disclaimer: This guide summarizes Sections 49, 50, 51, and the Third Schedule of the Income Tax Act. It is for informational purposes only.