GlossaryIntermediate
Withholding Tax
Tax deducted at the source of a payment -- before the recipient actually receives it -- and remitted directly to a tax authority on the recipient's behalf.
Withholding tax is tax deducted directly at the source of a payment — before the recipient actually receives the remaining amount — with the payer remitting the withheld portion directly to a tax authority on the recipient's behalf.
Withholding tax commonly applies to cross-border payments between jurisdictions, and a Double Taxation Agreement (see Kaavon's "Double Taxation Agreement" glossary definition) between the two countries involved can reduce or eliminate the withholding rate that would otherwise apply.
Examples
- A payment subject to withholding tax arrives with the tax already deducted, rather than requiring the recipient to separately pay it afterward.
- A Double Taxation Agreement between two countries can reduce the withholding tax rate that would otherwise apply to a cross-border payment between them.