The 2023 Finance Law

2023 Finance Law: focus on withholding tax applicable to service providers

The Finance Act 2023 (“Finance Act”) provides for the application of a withholding tax (“RAS”) to remuneration paid to certain service providers.

Listed below are the clarifications and modifications concerning the scope of this RAS made by the finance law in relation to the provisions of the finance bill presented by the government and the questions raised by this measure.

Exemption from this RAS for amounts paid to legal persons

While the initial version of the finance bill provided for the uniform application of this RAS to providers of natural and legal persons, following amendments voted by the Chamber of Councillors, the non-application of a withholding tax to service providers established as legal persons was retained in the finance law.

Maintenance of this RAS for remuneration paid by public entities

An exception to the exemption from this RAS for legal persons has however been provided: the remuneration paid by the State, local authorities, public companies and establishments as well as their subsidiaries to legal persons in particular, must be subject to a withholding tax at the rate of 5%.

The spirit of this rule is to ensure via this RAS that the beneficiaries of public funds pay their taxes.

Exemption for natural persons not subject to accounting

Service providers not subject to the obligation to keep accounts, such as auto-entrepreneurs or those who have opted for the single professional contribution, will also not be subject to this withholding tax.

Remuneration paid to service providers who are natural persons subject to an accounting obligation is subject to this RAS, the final rate of which has been set at 10%.

Impact of this measure with regard to the payment of corporate tax installments

Insofar as the RAS put in place by the finance law does not discharge corporation tax (IS), the question arises of its effects on the payment of installments under the IS .

Indeed, insofar as the deductions at source made by the taxpayer’s customers correspond to the amount of corporate tax owed by the latter for the same financial year, it could legitimately be freed from the payment of these installments.

The exemption from payment of corporate tax installments (after the 1st installment) is permitted and provided for by the General Tax Code, provided that the corporate tax actually due (calculated on the declared tax result of the financial year in question) does not or not greater than 10% or more of the amounts paid during the financial year (under installments and RAS in principle), under penalty of application of increases and penalties for delays.

In any event, it will be up to the Directorate General of Taxes to specify the terms of application of this new RAS and in particular its consequences on the payment of corporate tax installments, in particular in order to limit the impact in terms of cash for the taxpayers concerned.

Source: Consult here Finance Bill No. 50-22 for the 2023 budget year as adopted by the Council of Government on October 20, 2022.