Practical Law Glossary Item 6-502-5554 (Approx. 2 pages)
Glossary
Withholding Tax
A tax on a payment collected by the person making the payment (the payor). A withholding tax arises whenever a payor must both:
Deduct an amount from a payment it makes to another person (the payee) and that deduction represents the payee's tax liability on that payment.
Account for the amount withheld to the relevant taxing authority.
Withholding taxes frequently apply to cross-border payments of dividends, interest, and royalties but are often reduced or eliminated under an applicable income tax treaty. For further details, see Practice Note, Loan Agreement: US Withholding Taxes.