Withholding Tax
Withholding tax is tax deducted from a payment before it reaches the recipient.
Withholding tax requires the payer to deduct a percentage of the payment and remit it directly to the tax authority on the payee's behalf. It commonly applies to cross-border payments, contractor payments, and dividends. The payee receives the net amount plus a withholding certificate they can use as a tax credit.
Example
A company pays a foreign consultant $10,000 less 15% withholding tax, remitting $1,500 to the tax authority.
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Frequently asked questions
Who is responsible for paying withholding tax?
The payer — they must deduct it and remit it to the tax authority. Failing to withhold when required can leave the payer liable for the tax plus penalties.
Can the recipient recover withheld tax?
Often yes, through a tax credit or refund in their home country, especially where a tax treaty applies. The withholding certificate is the proof they need.
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