Withholding taxes

A withholding tax is a tax imposed by a country on the payment of certain income abroad. The object of the withholding tax is to ensure that non-resident persons pay income tax on UK sourced income. Withholding tax is normally applied to interest and royalties paid by a UK person to a non UK resident person.

Most advanced jurisdictions have rules which impose withholding taxes. The existence of these taxes is a significant barrier to international trade. It is often the case that a double tax treaty will reduce or eliminate the barrier to international trade. It is often the case that a double tax treaty will reduce or eliminate the withholding tax and in addition the UK's membership of the European Union also means that withholding taxes apply between residents of new countries will also be reduced.