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INCOME TAX TREATMENT OF INSTALLMENT SEVERANCE PAY CLARIFIED
In an interpretation dated 12 May 2003, the Ministry of Finance stated that when an associa-tion, enterprise or professional practitioner, for reasons of financial difficulty or cash-flow problems and by agreement with or consent of its employees, pays by installments severance pay that under the terms of its rules should normally be paid in a single lump sum, then such sever-ance pay is to be treated as a lump-sum payment as referred to in the Income Tax Law, under Ar-ticle 44 Paragraph 1 Category 9 Item 1. Thus, if the aggregate of such installment payments ex-ceeds the tax-free allowance prescribed by the above provision of the Income Tax Law, the tax withholder should at the time of payment with-hold tax at the appropriate withholding rate from the portion in excess of the tax-free allowance, and the recipient should include the payments in his declaration of total annual taxable income from all sources, and pay income tax in accor-dance with the law.