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WITHHOLDING TAX

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					WITHHOLDING TAX
Withholding Tax is a tax that is deducted and kept at source. The party
making the payment is required to keep a portion of the income as
withholding tax. Withholding at source is only a collecting mechanism.

1. Non-resident dividend withholding tax. Section 8(1)
     . . , there shall be paid a tax, to be known as 'non-resident dividend
     withholding tax', in respect of the payments specified in subsection (2)
     at the rate of 15 percent of the gross amount payable."
The tax is confined to dividends paid by a Fiji company to a non-resident. A Fiji
company paying dividends to a non-resident will withhold 15% and pay this over to
the government. Dividend income subject to non-resident dividend withholding
tax is exempt income for the purposes of normal tax by virtue of s. 17(39).

2. Non-resident interest withholding tax. Section 9(1)
. . . there shall be paid a tax, to be known as 'non-resident interest withholding
tax', at the prescribed rate, in respect of any interest. . .

The prescribed rate is 10%. The tax is limited to interest due from a Fiji
resident or person carrying on business in Fiji to a non-resident. The tax is
levied on the non-resident and effected by the debtor withholding 10% of
interest payments for remission to the government. Interest income subject to
non-resident interest withholding tax is not exempt from total income. Instead any
sum withheld as tax abates or reduces—in effect is a credit against—liability to
normal tax on the interest income.

3. Resident interest withholding tax
Section 9A(1) provides:
'there shall be paid a tax, to be known as "resident interest withholding tax" . .
.'

 The tax concerns only interest income earned by residents where the debtor is a
financial institution. Tax is imposed at a rate of 35% by the institution
withholding interest earned by the customer for payment to the government.
Resident interest withholding tax is credited against normal tax. The depositor
should supply to the financial institution his tax identification number. The aim
is to improve the procedures for reporting income of account holders by
financial institutions, and failing to do the interest income would be subject to
normal tax at the highest marginal rate.

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4. Royalty withholding tax
Section 10A provides:
      … there shall be a tax, to be known as a 'royalty withholding tax'. . .
The tax is limited to royalty income derived from Fiji by non-residents. The tax is
15% of any royalty paid and is effected by a withholding at source by the party
paying the royalty. A non-resident's royalty income and know-how payments are
included in total income and subject to normal tax.
      The tax chargeable on any royalties, know-how, . . . derived or
      accrued in Fiji to a non-resident shall be abated by any withholding tax
      paid under the provisions …




5. Dividend tax
Section 10(l)provides:
       . . . there shall be paid tax, to be known as 'dividend tax', equal to 5
       percent of any dividend . . .
The tax is limited to dividends paid to Fiji resident individuals by Fiji companies.
It is levied on the shareholders by the company withholding and remitting to
government 5% of any dividend paid. Under Sll(f) dividend income of an
individual is included in total income. The taxpayer may deduct from total
income a sum varying between 60% and 100% of the dividend included in total
income. The aim is to exclude between 60% and 100% of dividend income from
total income. The dividend income may be credited against total income.
S104(3) limits the credit to dividend tax on dividend income included in
chargeable income.
The overall aim is to credit dividend tax against normal tax only on non-
exempt dividend income. For example a taxpayer who has effectively excluded
60% of dividend income can only credit 40% of dividend tax against the liability
to normal tax. A taxpayer who has effectively excluded 100% of dividend
income cannot credit any dividend tax against the liability to normal tax. While
S.21 (2) has the effect of exempting part or all of the dividend income of an
individual from normal tax, the provision is not actually expressed as an
exempted income.
All of the taxpayer's dividend income is included in total income by S. 11 (f). The
S.104(2) provides for a credit of dividend tax and then limits the credit in S.
104(3).


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6. Tax on redundancy payments
The tax would normally be collected under the PAYE system. Section 17A
provides for redundancy payments to be taxed at the rate of 15% on any
amount in excess of $15,000.

Example Individual resident in Fiji
Assume the taxpayer is male, married with one child. He has an annual salary of
$30,000 from which is deducted his FNPF contribution of $2,100. He owns real
estate producing annual net rental income of $6,000 and shares in a Fiji
company producing dividend income of $3,000. There are no deductible
expenses incurred in earning the salary and dividend income.

calculation of normal tax
salary                                                 30,000
rental income                                          6,000
dividend income 3,000
less exempt 60% 1,800        1 200
total income                $37200

Allowance
      wife allowance                                   1200
            child allowance                              500
            FNPF contribution                          1 500
Total Allowances              $3200

total income                $37200
Total Allowances             $3200
chargeable income           $34 000

Tax Liability
Lum Sum                 $ 2674
0.31 X(34000-20000)        4340
                         $ 7014

dividend tax
dividend income of $3,000 subject to tax at 5% withheld at source dividend tax
$150
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    Total tax liability
             dividend tax on dividend income included in total income ($ 1,200) may be
             credited against liability to normal tax.
                 normal tax             7,014
             less credit               60
                          6954
    dividend tax                     + 150.00
    total tax                           $ 7104

    Individual not resident in Fiji
    Assume the taxpayer is single and resident in a country with which Fiji does not
    have an income tax treaty. She is a member of a partnership conducting
    business solely in Fiji. Her share of partnership profits for the year is $30,000.
    She owns real estate in Fiji producing annual net rental income of $4,000 and
    shares in a Fiji company producing dividend income of $3,000. A loan granted by
    the taxpayer to a Fiji resident produces interest income of $5,000. There are no
    deductible expenses incurred in earning the dividend and interest income.
    calculation of normal tax
       partnership income                        30,000
       rental                          income                      4,000
       interest income        5,000
     total income                                39,000
    no allowances available for this taxpayer chargeable income normal tax
    per
    Over $20,001      $5,058+31% of excess over $20,000




    Lum Sum        5058
    0.31 x 19000 = 5890
                 $10948

non-resident dividend withholding tax
           dividend income of $3,000 subject to tax at 15% withheld at source
             nrdwt     $450
    non-resident interest withholding tax
           interest income of $5,000 subject to tax at 10% withheld at source
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nriwt $500
        total tax liability nriwt may be credited against liability to normal tax
     (on interest income)

             normal tax 10948
         less credit          500
                     10448
Nrdwt 450
Nriwt      500
total tax $11,398



Tax Credit – it is deduction from normal Tax. For Dividend Calculation it is 5% of
the sum include in calculating total income.

Divident Tax – it is 5% of total Dividend received . It is added to normal tax.




Example Two
Jack is a resident in Fiji. He is single and received wages of
$21 000 and a dividend of $10 000 from a Fiji Company. His only claimable
allowance is $1500 for FNPF.



WAGES                                                 $21 000
DIVIDENT                         $10 000
Less exempted 60 %                 6 000               4 000
TOTAL INCOME                                          $25 000

TOTAL INCOME                                          $25 000
Less Allowance                                          1500
Chargeable Income                                      23 500

Normal Tax




Individual Income Tax Rate 2005

                                                                                    5
Resident

Taxable income                      Tax on this income
Over $20,001                        $2,674+31% of excess   over
                                    $20,000
                                            2674
( 23 500- 20 000) X 0.31   +1085
      Normal Tax                       $3759



  Normal Tax                       $3759
Less Tax Credit
0.05 x $4000                - 200
                                                $3559
Add Dividend Tax
0.05 x 10 000              + 500
      Total Tax              $ 4059




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