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Verify Non-Resident Payments Before Tax Treatment

Non-resident payment treatment depends on verified parties, activity, residence, entitlement and supporting evidence.

Crowe AHFAD | Tax Department
6/19/2025
Assessing non-resident payments before settlement

Assessing non-resident payments before settlement

Cross-border payments can carry several tax questions at once. A single remittance may involve the nature and source of income, the status and residence of the recipient, withholding or another collection mechanism, general sales tax, deductibility, related-party considerations and foreign-currency evidence. Treating the payment as an accounts-payable step is therefore a control weakness.

Five facts to establish before the tax conclusion

The reviewer should identify:

  • The legal parties to the arrangement and -where relevant- the person beneficially entitled to the income.
  • The exact activity, right, asset or financing being paid for.
  • Where and by whom the activity was performed or the right was exploited.
  • The contractual and actual payment flow, including intermediaries and netting.
  • The evidence available to support residence, entitlement, performance and value.

These facts should be tested against the Income Tax Law No. 17 of 2010 and its applicable amendments, the administrative position of the competent authority and any other relevant legislation. A treaty benefit should never be assumed; the existence, applicability and procedural requirements of any agreement must be verified for the parties and period concerned.

Residence is only one part of the analysis

A foreign address or bank account does not by itself determine the treatment. The analysis may also require consideration of the income character, source, place of performance, permanent or fixed presence, agency relationships and the identity of the person entitled to the income.

Descriptions such as consultancy, software, license, technical support, commission, interest or reimbursement can contain more than one component. Where the arrangement bundles services, rights and third-party costs, management should determine whether the components require separate analysis and evidence.

Move the review ahead of payment approval

The control should begin during contracting and vendor onboarding. Required certificates, agreements, scope documents and invoices should be specified before the supplier expects settlement. The approved tax conclusion should then state the gross amount, tax base, responsible party, collection or filing mechanism, required evidence and accounting entries.

Payment approval should be blocked or escalated where:

  • The contracting and invoicing entities differ without explanation.
  • The invoice is too general to establish what was supplied.
  • Performance evidence is missing or inconsistent with the contract.
  • Residence or entitlement evidence is expired, incomplete or inapplicable.
  • The payment route includes an intermediary not identified in the agreement.
  • The proposed tax treatment relies only on prior practice.

Illustrative scenario: software implementation and support

Consider a contract with a non-resident provider covering software access, implementation, data migration and annual support. Posting the full invoice as “IT services” may conceal distinct elements. The organization should identify the rights granted, where implementation occurs, who performs the work, whether third parties are involved and how the price is allocated.

That factual analysis informs the income-tax and collection position, the general sales tax assessment, deductibility and the financial reporting treatment. It also determines which documents must be available if the payment is later examined. The example does not prescribe one outcome; it illustrates why classification should precede remittance.

Evidence that should remain with the payment

The payment file should retain the executed agreement, invoices, performance and acceptance records, residence or status documents where relevant, technical conclusion, approval, tax deduction or payment evidence, bank record, exchange-rate support and reporting reference.

Crowe AHFAD supports organizations in assessing cross-border payment facts, documenting tax positions and embedding the required review into contracting and payment workflows.