The Imposition of 10% WHT on commissions paid to insurance and advertising agents effective July 1, 2020, was an expected change given the recent success by the URA in a court judgement.
Agents for insurance and advertising companies were previously not treated as professionals and since they did not fit the description in the ITA, there was no tax liability charged on the payments from the insurance and advertising companies.
The amendment is meant to introduce the tax incidence to the agents much earlier than later. The agents are usually harder to track and manage by the authority but this requirement for the payers to withhold tax brings a lot in the ambit of the tax law. Once a withholding tax return is furnished, the URA can easily track the total income of each agent in a more structured manner.
The insurance and advertising companies will be required to withhold tax from commission payments to their agents. This will be accounted for in the monthly WHT returns and a respective payment of the WHT will be made to the URA.
The agents who will suffer the WHT deduction on the commission payments will receive Tax Credit Certificates (TCC) from the insurance and advertising company upon filing the WHT return and making the respective payments to the URA. The TCCs will be creditable or deductible against the tax liability since the WHT on the transaction is not a final tax.
This specific WHT obligation will be waived by the WHT exemption. The WHT exemption is applicable for taxpayers that have to pay income tax at 30% and has been in operation for more than 3 years according to the URA practice. This exemption is particularly applicable for one year once granted by the URA but can be cancelled in the case that there is an element of non-compliance discovered within the tax period.
The requirement to maintain a good compliance record is upheld by the team that reviews the applications for the WHT exemptions. Proper compliance in the eyes of the URA includes directors’ compliance with tax returning, payment of provisional taxes and not being a loss-making entity, among others.
Since the Income Tax Act does not define a commission, we will expect that the literal meaning and industry understanding will suffice. All payments being made as a reward for winning a media business by a media agent may meet the explanation.