Withholding Tax
Category: tax
Tax deducted at source from payments like dividends, royalties, or services.
Withholding tax is tax deducted at source from payments such as dividends, royalties, interest, or service fees made to foreign entities. Tax treaties between countries often reduce the standard withholding rates. In cross-border e-commerce, withholding tax commonly applies to royalty payments for intellectual property, platform service fees, and intercompany payments.
Examples
- • A Chinese company paying royalties to a US licensor must withhold 10% US tax (reduced from 30% under the US-China tax treaty).
- • Amazon withholds 30% US tax on royalty payments (e.g., Kindle Direct Publishing) to non-US sellers unless a treaty rate applies.
- • A seller receiving dividends from a foreign subsidiary may face withholding tax in the subsidiary's country, which can often be credited against home-country tax.