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Withholding Tax
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.