The following are updates to withholding tax:
Interest and similar payments subject to withholding tax under s 45A
The new s 12(6AA) provides that the reference to “interest” in s 12(6), in the case of an arrangement that is a finance lease of any machinery or plant that is treated as sold by the lessor to the lessee made under s 10D(1), a reference to the part of any payment by the lessee that is income of the lessor under s 10D(2A).
Rental payments subject to withholding tax under s 45A
The new s 12(7AA) provides that any payment by the lessee to the lessor under a finance lease of any machinery or plant that is not treated as “a sale”, is treated as a payment under an agreement or arrangement for the use of movable property under s 12(7)(d).
Withholding tax rate on REIT distributions under s 45G
In Budget 2019, it was announced that the reduced withholding tax rate of 10% on distributions made by a REIT to qualifying non-resident non-individual unit holders under s 43(3B) will be extended till 31 December 2025. Withholding tax does not apply to any distribution made by a REIT where tax has already been paid, on the income from which the distribution is made, by the trustee of the trust under s 45G(4). The 10% concessionary withholding tax rate on such REITs ETFs distributions received by qualifying non-resident non-individuals will also be extended till 31 December 2025.
Relevant definitions for withholding tax on interest payments
The various definitions relevant for withholding tax on interest payments have also been updated.
Withholding tax exemption on interest payments
The changes to the withholding tax exemptions for the financial sector that were announced in the 2018 Budget have been legislated through the:
- Income Tax (Exemption of Interest and Other Payments for Economic and Technological Development) (No.2) Notification 2018
- Income Tax (Exemption of Interest and Other Payments for Economic and Technological Development) (Amendment No. 5) Notification 2018
- Income Tax (Exemption of Interest and Other Payments for Economic and Technological Development) (Amendment No. 4) Notification 2018
- Income Tax (Exemption of Interest and Other Payments for Economic and Technological Development) (Amendment No. 3) Notification 2018
- Income Tax (Exemption of Interest and Other Payments for Economic and Technological Development) (Amendment No. 2) Notification 2018
- Income Tax (Exemption of Interest and Other Payments for Economic and Technological Development) (Amendment) Notification 2018
- Income Tax (Exemption of Interest and Other Payments for Economic and Technological Development) (Amendment No. 6) Notification 2018
- Income Tax (Qualifying Debt Securities) (Amendment) Regulations 2018, and
- Income Tax (Concessionary Rate of Tax or Exemption for Income Derived from Debt Securities) (Amendment) Regulations 2018.
The Income Tax (Exemption of Interest and Other Payments for Economic and Technological Development) (Amendment) Notification 2019 extends the automatic withholding tax exemption on interest payments made by Financial Sector Incentive-Headquarter Services (FSI-HQ) award recipients during the period of their FSI-HQ award for qualifying loans to 31 December 2023.