Is your charity missing out on withholding tax reclaims?

Understanding the rules, reliefs, and reclaim processes is essential to ensure your charity isn’t leaving money on the table. Join our webinar ‘Is your charity losing investment income to withholding tax?’ on 17 September to find out more and to ask any questions about WHT:

• Register here

Withholding tax is charged by the tax authority of the country of investment on income or gains such as dividends, interest, or royalties received by overseas investors. For charities, this means that a portion of the income generated from foreign investments is withheld at source by the foreign tax authority. While the rates and rules vary by country, the impact can be significant. For example, a 30% WHT on dividends from US equities or a 35% WHT on Swiss investments can erode the returns your charity receives. Over time, this “tax leakage” can add up to a substantial sum of money that could otherwise be used to support your charitable activities.

Double taxation treaties (DTTs) and domestic reliefs are designed to prevent the same income from being taxed twice and often provide preferential treatment for charities and other non-profit organisations. The UK has an extensive network of DTTs with countries around the world, putting a UK charity in a favourable position in many jurisdictions to reclaim WHT. Additionally, some countries offer domestic exemptions for charities. For example, the United States exempts qualifying non-US charities from WHT on certain types of income, provided they meet specific organisational and operational criteria. Relief from WHT can be provided at source, i.e. on payment date based on meeting the required criteria beforehand, or by way of a reclaim made retrospectively of the pay date.

Despite the availability of reliefs, many charities fail to reclaim WHT for several reasons, including a lack of awareness of the reliefs available or uncertainty over whether a charity qualifies. The rules, documentation requirements, and processes differ by country, and this can be daunting to navigate, particularly in instances where custodians or asset managers do not proactively apply for relief at source or file reclaims on behalf of their clients. However, to ensure your charity isn’t missing out, consider the following steps:

1. Understand your investment profile: identify which countries your charity is invested in, the types of assets held (equities, debt, etc.), and whether investments are made directly or via funds. This will help determine which WHT rules and reliefs apply.
2. Understand your entitlement: review the relevant double taxation treaties and domestic laws for each country. Check if your charity qualifies for beneficial rates or exemptions, and what documentation is required to prove eligibility.
3. Don’t forget about domestic reliefs: in addition to treaty-based relief, check for any unilateral domestic exemptions (such as the US exemption) that may apply to your charity.
4. Understand where to get support: engage with your asset manager, custodian, or tax advisor to understand what support they offer for WHT relief at source or reclaims.
5. Keep records and stay organised: maintain clear records of all investment income, WHT suffered, and documentation submitted for reclaims. The reclaim process can take weeks to years, and having organised records will help track progress and respond to any queries from tax authorities.
6. Review regularly: tax treaties and domestic laws can change. Regularly review your charity’s investment tax position to ensure you are taking advantage of all available reliefs.

Every pound recovered is a pound that can advance your charity’s mission. Withholding tax relief may be complex, but the opportunities are significant and often overlooked! By taking action now, you can reclaim income that rightfully belongs to your charity and put it back to work where it matters most.

If you want to find out more and ask questions about your charity’s investments, please join our 17 September webinar, or contact Tom Daffern.

^{*the views expressed are the authors’ and not ICAEW's}