I have an own consulting business in Germany and recently finished a project with a Thai company. After sending the invoice, I got an answer where they added the following note to my original invoice: "Deduct withholding tax 15%", i.e. my fees would be 15% less than actually proposed and billed. By German law, btw, I do not charge VAT.

On this website I read that "Grossing up It is permissible and in many cases usual to provide that payments will be made net of income tax, or in other words, the payor of the income will pay the income tax for the person receiving the payment. In such cases, the income tax is subject to withholding taxes at the same rate as that applied to the base income. For example, where the withholding tax is 15% of gross, the rate that must be applied where the payor pays the tax is 17.647%." Does that mean I have to gross up 17.647%? I do not understand this rate. I would understand to gross up 15%, but why 17.647%?

Do the math> Suppose the agreed net to you is $100. You will get 85% of the gross. So 100= .85X; so X= 100/.85 which is 117.647

Do the math> Suppose the agreed net to you is $100. You will get 85% of the gross. So 100= .85X; so X= 100/.85 which is 117.647

If you want a net payment of 100.00 please note the following ...

100.00 + 17.647 % = 117.647 less 15% tax = 99.99995 that is to say 100.00

to add only 15 % to the 100.00 = 115.00 of course

a total of 115.00 less 15 % tax = 97.75 (thus 2.25 less of your 100.00)

Since two decimal points are only in use (invoice wise) thus the % figure should be 17.65 % ...

i.e. 100.00 + 17.65 % = 117.65 - 15 % = 100.0025 ( the digit of 25 is useless of course) hence 100.00

Calculation has been explained nicely by the 2 others. The Party here in Thailand is obligated to withhold taxes, but they are also obligated to issue you the W/H Tax Certificate. There is the one in Thai, plus the one in English, which of course has to be aquired at the Revenue Department. Make sure you tell them that. Once you have that you can then claim back the W/H in Germany.

We are German Company here in Thailand and do such an transaction once a month.

Thanks for your comments which help me a lot. :-)

The Party here in Thailand is obligated to withhold taxes, but they are also obligated to issue you the W/H Tax Certificate. There is the one in Thai, plus the one in English, which of course has to be aquired at the Revenue Department. Make sure you tell them that. Once you have that you can then claim back the W/H in Germany.

Does that mean I have 2 options:

1) Grossing up without claiming back the taxes;

2) Not grossing up but requesting the W/H tax certificate from them and then claming it back?

I would prefer the 1st way, so I ask.

Do the math> Suppose the agreed net to you is $100. You will get 85% of the gross. So 100= .85X; so X= 100/.85 which is 117.647

If you want a net payment of 100.00 please note the following ...

100.00 + 17.647 % = 117.647 less 15% tax = 99.99995 that is to say 100.00

to add only 15 % to the 100.00 = 115.00 of course

a total of 115.00 less 15 % tax = 97.75 (thus 2.25 less of your 100.00)

Since two decimal points are only in use (invoice wise) thus the % figure should be 17.65 % ...

i.e. 100.00 + 17.65 % = 117.65 - 15 % = 100.0025 ( the digit of 25 is useless of course) hence 100.00

A follow up.

It must be understood of course that the adding of 17.65% only applies to a tax rate of 15% (as outlined above) however other countries have different tax rates

Example ... for a tax rate of say 17.5% the added % on top of the 100.00 must be 21.22 %, - 17.5 % tax = 100.0065 ... thus 100.00

this applies to any amount of the given tax rate, if the net sum should be 1000.00, then + 21.22%, - 17.5 % tax = 1,000.0650 ... thus 1,000.00

For a 10% tax rate the added "%" on top of the 100.00 = 11.11%, - 10% tax = 99,9990 ... thus 100.00

The above outline applies of course only to the stated "three" tax rates, 10%. 15%. 17.5% should there be other tax rates then another "%" must of course be applied

Does that mean I have 2 options:

1) Grossing up without claiming back the taxes;

2) Not grossing up but requesting the W/H tax certificate from them and then claming it back?

Can someone answer this question?