Payment of Interest to Fixed Term Deposit Accounts

Withholding Tax-Payment of Interest to Resident Savers for Fixed Term Deposit Accounts

In this case, we are banks and we have many savers/investors/depositors (individual or company) to deposit their cashes in our banks. When they deposited in our banks for specific time period, and then banks will pay them interests, but before interest payment, banks have responsibility to withhold tax on interest from resident savers/investors/depositors .

Term “Fixed Term Deposit Accounts” means it is saving for specific time period ( e.g. 1 month, 2 months…,1 year,2 years,3 years etc) that savers/investors/depositors that cannot withdraw their principals/money before maturity date otherwise penalty from bank.

Withholding tax on interest for fixed term deposit accounts is 6%.

Example 1

Assume resident AAA Company deposited 10,000$ to ABC Bank in Cambodia. Bank offered rate 0.5% per month with 1 year fixed term deposit.

Required:

Calculate withholding tax on interest expense that ABC  Bank will withhold tax from AAA Company before interest payment.

Answer

Withholding tax (WHT) on interest payment

Interest expense = $10,000 x 0.5%=$50

WHT on interest = $50*6%=$3

ABC Bank will pay cash of $47 (50-$3) to AAA Company, and ABC Bank will pay tax of $3 to tax authority.