Taxes and withholding tax

Taxes and withholding tax2017-02-19T13:49:45+00:00

taxiOur taxi represents the impact of taxes on the amounts to be paid by the customer and received by the supplier. And yes, two taxis would have been a more obvious pun!

Be clear within the agreement as to whether the pricing stated is inclusive or exclusive of VAT, if applicable.

If the product or service is being delivered to a different country, check whether there are additional customs, import or export duties applicable. If so, who pays them? Are they deducted from the amount the customer pays to the seller, or are they paid by the customer in addition to the price?

Do check the truck, and if you’re delivering or buying physical products that are being shipped around the globe, make sure that you have chosen the correct INCOTERMS for your requirements. The INCOTERMS will set out which party is responsible for which elements of the various customs and import duties involved in the transaction, so you should ensure that these are aligned with your drafting about taxes and duties.

Withholding tax is a special case that can result in a supplier receiving less money than the full amount of its invoice. It is a tax applied by a government to purchases made by companies within its country, of products or services from outside the country. Usually, it is the responsibility of the customer to pay the withholding tax to its government, and the customer will deduct the amount due from the sums owing to the supplier.

If the customer’s country has a tax treaty with the seller’s country, it may be possible for the seller to obtain a tax certificate enabling it to reclaim the withholding tax from its own government, in the form of a rebate. This can take a long time, and require a significant amount of paperwork and administrative overhead – and is only of value if the seller is profitable, and would normally pay corporation tax in excess of the amount of the withholding tax rebate.

Want to know more? Contact Devant for contract assistance!