Withholding Tax
/ˈwɪθˌhoʊldɪŋ tæks/
Definitions
- (n.) A tax withheld at source by a payer on income payments to a recipient, payable directly to the government.
Employers must deduct withholding tax from employees' salaries and remit it to the tax authorities.
- (n.) A prepayment mechanism to ensure tax compliance on cross-border payments such as dividends, interest, or royalties.
Withholding tax on cross-border dividends prevents tax evasion by foreign investors.
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Commentary
Withholding tax serves as a mechanism to facilitate tax collection by ensuring that taxes due on certain payments are collected at the point of payment rather than relying solely on the recipient to report and pay tax later.
This glossary is for general informational and educational purposes only. Definitions are jurisdiction-agnostic but reflect terminology and concepts primarily drawn from English and American legal traditions. Nothing herein constitutes legal advice or creates a lawyer-client relationship. Users should consult qualified counsel for advice on specific matters or jurisdictions.