Payment of Intangible Asset Royalty

Withholding Tax-Payment of Intangible Asset Royalty

Royalty Payment of intangible assets to resident individual or registered companies are subject to withholding tax (WHT) at 15%.

Intangible assets included licenses, franchises, copyrights, patents, trademarks, trade names, software etc. Payments to these intangible assets are called ” Royalty” .

Exemption:

There is no withholding tax on royalty fees applied for payment to the local firm producer for three years up to 31 December 2018.Moreover, there is no withholding tax applied for payment by local cinema to the local agent (local firm distribution agent) as the firm product does not belong to that local agent.

Example 1

Assume ABC Coffee Company bought franchise of $11,000 ( included any taxes) from resident XYZ Coffee Company.

Required

Calculate withholding tax if any. 

Answer

WHT base = 11,000/1.1=$10,000

Withholding tax on royalty=$10,000 x 15%=$1,500

Note:

• -XYZ Coffee Company got cash of $9,500 ( 11,000-1,500) from ABC Coffee Company if XYZ Coffee Company allowed ABC Coffee Company withhold tax of $1,500.
• -XYZ Coffee Company got cash of $11,000 from ABC Coffee Company if XYZ Coffee Company did not allow ABC Coffee Company withhold tax of $1,500, so ABC Coffee Company will pay $1,500 ( WHT) on behalf of XYZ Coffee Company.