United States Withholding Tax – Health Check Required?

• Are you in receipt of United States related income?
• If yes, are you being withheld tax at the rate of 30%?
• If a lower threshold is being applied, have you revised your tax declarations to ensure that you still satisfy the necessary conditions?
• Is your Malta tax charge impacted by the United States withholding tax?

If the answer to any of the above questions is yes, we encourage you to confirm whether the status provided in relation to your tax status is correct as you may not be paying the correct amount of tax.

As a general rule, what is defined as “Fixed, Determinable, Annual or Periodic income” under US tax laws is subject to a 30% withholding tax.  A lower tax rate may be available under the Malta – United States Double Tax Treaty.

The Treaty includes various conditions that need to be satisfied in order for a person to claim a lower U.S. withholding tax rate. Specifically in relation to entities, these conditions may be rather sophisticated and may even require specialist input from a United States tax perspective.

W-8Ben-E Form & Limitiation on Benefits Clause

With the advent of the Foreign Account Tax Compliance Act (FATCA – implemented in Malta as from December 2013), various financial institutions have increased their internal policies to ensure that they adhere to FATCA and other United States related matters including withholding tax.

As part of this increased scrutiny, such financial institutions reviewed their account holders’ tax declarations and started requesting their account holders to complete Part 3 of the W-8Ben form.

This section of the form requires the account holder to declare that he/she/it satisfies the provisions of the Malta – United States Double Tax Treaty and is therefore able to claim a lower United States withholding rate.

Way Forward

Given the risks involved when making such declarations and the difficulty in confirming whether an entity is able to claim a reduction in the United States withholding tax rate, PwC Malta has teamed up with PwC USA to provide assistance in this respect.

Our combined Malta and USA teams are able to provide assistance with respect to the following:

(a) Confirmation as to whether the correct United States documentation is in place with the appropriate US withholding agent;

(b) Analysis of the activities and structure of the entity concerned to understand whether the conditions of the Malta-United  States Double Tax Treaty are satisfied;

(c) Assistance with the impact of the United States withholding tax on the Maltese tax liability of the entity concerned.