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Global Withholding Tax: what is it and why is it important?

Nicole de Rauville - September 14, 2018

Global Withholding Tax: what is it and why is it important?

Countries pay for the services they provide their citizens, residents and visitors through taxation - and taxes may be collected in any number of ways. Some of the most common forms of taxation include income tax (personal and corporate) and Value Added Tax (VAT), applied to the cost of goods and services.

As a cross-border lender with international borrowers, Withholding Tax (WHT) becomes relevant to Prodigy Finance, as it sometimes applies to lenders who receive payments from borrowers who are tax residents in a foreign jurisdiction.

WHT may apply to interest, royalties, dividends and service fees being paid to a person or company resident in a different country. In Prodigy Finance’s case, WHT would be charged on the interest component of the loan repayment made.

Keep in mind, this is a global tax and not Prodigy Finance-specific and the application of WHT always depends on a borrower’s personal circumstances. For example, an Indian borrower receiving a Credila loan and repaying it from the US may have to pay WHT in the US.

As a Prodigy Finance borrower, will I need to pay WHT? 

Possibly. It depends where you’re from, where you will study (or have studied), and where you live while making repayments.

As one of our borrowers, you may have to pay an amount above what you owe Prodigy Finance to a tax authority (this may be in the form of a withholding or other tax, so we’ll just call it a ‘tax deduction’).

Different countries have different tax laws and may therefore have different levels of ‘tax deduction’ so the amount you pay, if any, may vary depending on your location.

We’re not able to give you any tax advice, but as responsible lenders, we wanted to let you know about the tax you may owe as a result of taking out a loan for your international education. 

What determines the amount of WHT payable?

The amount of tax payable and rules surrounding payment and filing of related tax returns are determined by the local tax laws of the country of tax residence of the borrower (most likely where you’re working and repaying from).

If your tax residence country has signed a double tax treaty (DTT) with the lender’s home country (in Prodigy Finance’s case this is Ireland), the rules, exemptions, reliefs set out in the DTT will also apply.

DTT can reduce or eliminate the need to pay WHT, and in some countries, there are also exemptions or exceptions available. However, the specifics are too numerous to begin to cover so it’s critical to discuss this with a tax specialist in your home country who is familiar with your finances.  

What is Prodigy Finance doing about WHT?

Prodigy Finance is doing its utmost to minimise the amount of WHT payable by borrowers. To date, we’ve implemented measures or applied to local revenue authorities for exemptions from WHT for borrowers repaying from some countries, including the US and UK. We are also in the process of applying for reduced rates of WHT on payments to us in several other countries and will make this information available as and when our applications are approved.

These examples assume that Prodigy Finance has assigned the benefit of a loan to a Prodigy entity which is resident in the Republic of Ireland (‘Prodigy Ireland’). These examples are indicative only and do not reflect the actual tax arrangements or required payments in any country.

Example 1 – Anna lives in Country A. Her monthly payment for the account of Prodigy Ireland is $400.00 (made up of $300.00 principal repayment and $100.00 interest payment). Country A does not require any withholding tax to be paid on interest payments for the account of Prodigy Ireland.

Anna’s monthly payment for the account of Prodigy Ireland will be $400.00. No extra payments are required.

Example 2 – Anna lives in Country B. Her monthly payment for the account of Prodigy Ireland is $400.00 (made up of $300.00 principal repayment and $100.00 interest payment). Country B requires withholding tax to be paid on interest payments to lenders resident in other countries at the rate of 25%. There is no double tax treaty in place between Country B and the Republic of Ireland.

Anna is still required to ensure that Prodigy Ireland receives $400.00 every month. She must however pay a ‘grossed up ‘ interest payment of $133.33 rather than $100 and pay the local currency equivalent of $33.33 (25% of $133.33) to the tax authorities of Country B.

The effect of this is that Anna will pay a total amount of $433.33 every month and will overall pay $33.33 more every month in respect of her Prodigy Finance loan.

Example 3 – Anna lives in Country C. Her monthly payment for the account of Prodigy Ireland is $400.00 (made up of $300.00 principal repayment and $100.00 interest payment). Country C requires withholding tax to be paid on interest payments to lenders resident in other countries at a rate of 25% but there is a double tax treaty in place between Country C and the Republic of Ireland which reduces the withholding tax on interest payments to 10%. In this case, Prodigy Ireland is treated as the owner of interest payments for the purposes of the double tax treaty.

Anna is still required to ensure that Prodigy Ireland receives $400.00 every month. She must however pay a ‘grossed up’ interest payment of $111.11 rather than $100 and pay the local currency equivalent of $11.11 (10% of $111.11) to the tax authorities of Country B.

The effect of this is that Anna will pay a total amount of $411.11 every month and will overall pay $11.11 more every month in respect of her Prodigy Finance loan.

If you’ve got questions about who, when or how you should pay this tax, you’ll need to reach out to your local tax authority or a tax advisor who will be able to help you.

While the responsibility for paying your tax remains yours, we’re happy to assist you with any information you need to provide your tax advisor.


Ready to learn more about Prodigy Finance loans?

Prodigy Finance offers no cosigner, collateral-free loans to eligible international students attending supported universities across the globe. If you're considering postgraduate study, you might want to consider a Prodigy Finance loan.


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