Withholding tax

A withholding tax requires a person or company making a payment to someone else to withhold part of the payment and pay it to the government.

Put simply, a withholding tax requires a person or company making a payment to someone else to withhold part of the payment and pay it to the government.

For example, the UK's Pay As You Earn (PAYE) system, whereby salaried staff receive their wages net of tax, is a form of withholding tax, although it's rarely described as such. In the UK, there is no requirement to deduct withholding tax from dividends (with the exception of real-estate investment trusts).

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