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Accounting
Withholding Tax
Tax deducted at source from payments such as interest, dividends, or royalties before they reach the recipient.
Withholding tax is a way governments collect tax on cross-border payments. Companies must account for it correctly as both a liability and a reduction in the expense or distribution.
It's the taxman taking his cut directly from your paycheck before you even see the money.
Real world: A UK company pays dividends to a foreign shareholder. It must withhold 20% tax at source and pay it to HMRC. The shareholder receives the net amount and may claim credit in their home country.
💡 Withholding tax is the government's way of making sure it gets paid first on certain income.