Under domestic rules, royalty payments sent abroad are subject to a Withholding Tax deduction of 20%. Changes were introduced in 2016 extending the Withholding Tax requirements to payments for the use of intangible fixed assets such as trademarks and brand names.The recipient country can rely on the relevant Double Tax Treaty to reduce the tax rate or eliminate it altogether.
With effect from April 2019, Withholding Tax obligations will be extended to royalty payments, and payments for certain other rights, made to low or no tax jurisdictions in connection with sales to UK customers. The rules will apply regardless of where the payer is located.
The government will publish a consultation document on 1 December 2017 on the design of the rules expanding the circumstances in which the new royalty regime would apply.
Companies and their advisers with offshore royalty structures where treaty protection is utilised to reduce or eliminate UK Withholding Tax should be mindful of these new changes and where applicable engage with the consultation process.