Taxplanations

Pay now or pay later or both?

Sometimes tax has to be taken out of your payment by your customer (by withholding from your payment) and sometimes tax authorities expect you to pay the tax yourself at a later date, and don't require your customers to withhold.

And sometimes - it can be both (but not too often)

A rose by any other name..

There are lots of ways to refer to withholding tax or similar withholdings, and here are some that you'll come across as you journey into different tax jurisdictions:

- WHT (that's short for withholding tax)

- TDS (Tax Deducted at Source)

- Tax Retention

- NRT (Non-Resident Tax)

- DAS (Deduction at Source)

Withholding tax is a prepayment of your tax liability.

– You're probably familiar with withholding tax. If you've been an employee, your employer would have held back part of your pay and paid it to the tax authorities, and this is used towards your income tax due for the year. When you do business overseas, there are often rules that require your customers to do pretty much the same thing, so that tax authorities get their "slice".

Final tax? What does that mean?

When you see a withholding tax described as a final tax, this means that once the tax is withheld, you're done! As far as your customer's country is concerned, you've paid your share to their tax authority, and you don't need to do any more.

Don't forget, this doesn't mean that you're completely done (not yet!), as you still have to check how it's taxed in your home country.

But I've got a tax clause in my contract?

It's great to hear that you're thinking about tax! Generally speaking, most tax clauses deal with non-income taxes. This means - VAT, GST, excise taxes, customs duties or similar. These taxes are levied on the transaction itself. It often won't cover you for withholding tax because it's a prepayment of direct income tax.

Get the conversation started - the earlier the better.

It's always good to have certainty. And that's why it's always good to check in with your customer - and ask them whether they plan to make any withholdings from your payment, and what percentage. Once amounts have been withheld, it can be very difficult to reverse it (if not impossible). Better safe than sorry!