Knowledge Centre
Withholding Tax (also see Dividend section)
Withholding, or retention, tax is an income tax paid by the payer (the company) rather than the payee (shareholder). The tax on the dividend is thus withheld (or deducted) from the gross (tax free) dividend. There may be additional withholding tax if the payee or recipient is a resident of a different tax jurisdiction to that of the company. The withholding tax is recorded with the dividend notification.
withholding tax is basically a tax payment on account or credit. It may be refunded when the recipient files their tax return or there may be additional tax to be paid. This withheld tax may be eligible for a tax credit in the payee’s home tax jurisdiction depending on the existence of a tax treaty between the two jurisdictions.
withholding tax rates vary from country to country. They range from 0% (e.g., United Kingdom) to 35% (e.g., Switzerland). Some countries have varying withholding tax rates that apply to different types of dividend payments (e.g., dividends from privatised companies versus non-privatised companies). Also, many income tax treaties impose a different withholding tax rate with respect to “significant shareholders” who hold at least 5% (if not more) of the dividend-paying company.
In certain countries, the length of time that the non-resident investor has held the shares of the dividend paying company, can affect the withholding tax rate. In short, the rate at which withholding tax is deducted from dividends paid to non-residents can vary widely, for a variety of reasons.
As a broad rule of thumb, the withholding tax is 15% on dividends.
Most tax authorities require withholding tax to be recorded and remitted by the company within a certain period of time. The amount withheld is treated as debit. The tax is deducted at source.