Payment of Interest to Non-Bank or Saving Institution

Withholding Tax-Payment of Interest to Non-Bank or Saving Institution

In practice, some companies face financial problem, so companies may borrow money from various sources. If Companies borrowed loan from Non-Bank or Saving Institution such as owners, family, other companies etc, so companies will pay interest to these resident lenders. Interest expenses are subject to withholding tax at 15%.

But withholding tax on interest is exemption if companies borrowed loan from Bank or Saving Institution.

Example 1

Assume ABC Company borrowed loan from various sources as follows.

• -ABC ‘s Owner of $5,000, and interest rate is 1.2%.
• -Company AAA of $30,000, and interest rate is 1%.
• -Bank NNN of $10,000, and interest rate is 1.1%.

Required

Calculate withholding tax if any. 

Answer

• -Interest expense paid to ABC ‘s Owner =5,000 x 1.2%=$60
• -Interest expense paid to Company AAA =30,000 x 1%=$300
• -Interest expense paid to Bank NNN=10,000 x 1.1%=$110

Total interest subject to withholding tax =60 +300=$360

Withholding on interest = $360 x 15% =$54

Note: interest payment of $110 to Bank NNN is not subject to withholding tax on interest because Bank NNN is bank.