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Ask an Expert: Limits on withholding tax credits

Question: Our company is providing services to a customer in Peru and the customer is proposing to withholding 30% tax from the payment to us. Can this 30% tax be deducted from our UK corporation tax liability? We do not have a subsidiary or branch in Peru and our profit margin on the contract is approximately 20%.

Answer: Double tax relief may be claimed either under the terms of a double tax treaty or unilateral relief where there is no treaty in place but the rules are generally the same.

Foreign tax arising on profits can reduce the UK corporation tax arising on the same profits – this is called credit relief. In some cases if there is insufficient UK corporation tax on the profits...

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