Payment of Interest
Lesson Summary- Withholding Tax on Interest Payment to Non-Resident Lenders
Resident Companies or Banks in Cambodia may borrow from various foreign sources / foreign countries ( called non-resident lenders) such as foreign banks, companies, individual, investors etc. to expand their operations.
When Resident Companies or Banks in Cambodia borrowed money, they will pay non-resident lenders interests, but before interest payment, Resident Companies or Banks in Cambodia have responsibility to withhold tax on interest from non-resident lenders.
Withholding tax on interest payment from non-resident lenders is 14% (standard rate).
Example 1
Assume resident BBB Company in Cambodia borrowed 20,000$ for foreign CCC Bank outside Cambodia.
Assume Borrowing rate from foreign CCC Bank is 0.8% per month.
Required:
Calculate withholding tax on interest that BBB Company will withhold tax from foreign CCC Bank before interest payment.
Answer
Withholding tax (WHT) on interest payment
Interest expense = $20,000 x 0.8%=$160
WHT on interest from non-resident lender (foreign CCC Bank) = $160*14%=$22.4
Note:
- -BBB Company will pay net interest of 137.6 ( $160-$22.4) to foreign CCC Bank if foreign CCC Bank allowed BBB Company withhold tax on interest.
- -BBB Company will pay gross interest of $160 to foreign CCC Bank if foreign CCC Bank did not allow BBB Company withhold tax on interest, so BBB Company will pay $22.4 ( WHT) on behalf of foreign CCC Bank. In conclusion, total cash payment by BBB Company is $182.4 ( $160+$22.4)
Example 2
Assume resident ABC Bank in Cambodia borrowed 1,000,000$ for foreign XYZ Bank outside Cambodia.
Assume Borrowing rate from foreign XYZ Bank is 0.5% per month.
Required:
Calculate withholding tax on interest that ABC Bank in Cambodia will withhold tax from foreign XYZ Bank before interest payment.
Answer
Withholding tax (WHT) on interest payment
Interest expense = $1,000,000 x 0.5%=$5,000
WHT on interest from non-resident lender (foreign XYZ Bank) = $5,000*14%=$700