WITHHOLDING TAX
Last updated: June 2026
THE SHORT ANSWER
It's "just a service" and you're providing it remotely, surely there's no withholding tax on that? Not so fast! That doesn't always mean that there isn't withholding tax. Many countries charge withholding tax on service fees paid to a foreign provider, even if you never step foot in the other country.
Withholding tax (otherwise known as WHT) means your customer is legally required to hold back part of your payment and pay it to their tax authority, so you receive less than the invoice says, sometimes a lot less.
Three things to get straight before you agree your contract:
- does the country charge withholding tax on the service you're providing?
- if so, what's the rate?
- can a Tax Treaty reduce the rate or remove it? And what do you need to do to claim that?
Get it wrong, and the tax comes out of your margin, or holds up your payment, after you've signed. So it's worth checking before signature.
PAYMENTS SUBJECT TO WITHHOLDING TAX
Here are the most common payments that are subject to withholding tax:
01
DIVIDENDS
Dividends paid to shareholders.
02
INTEREST
All types of interest.
03
ROYALTIES / RENTALS
Royalties includes payments for the use of intellectual property, but often also for equipment or experience.
04
TECHNICAL FEES
Technical type services may attract withholding tax, whether delivered in the country or completely remotely.
05
SERVICES
Whether provided remotely or delivered in country, many countries have withholding obligations.
06
ENTERTAINMENT SERVICES
Personal services such as performance fees, sportspeople, and entertainers.
07
DIRECTORS' FEES
Often subject to withholding tax even when the director is resident abroad.
08
CAPITAL GAINS
Proceeds from the sales of capital assets, including real estate or shares, may be subject to withholding obligations.
09
CERTAIN INDUSTRIES - CONSTRUCTION, PROCESSING, FORESTRY
Certain industries and certain types of customers may have withholding obligations - this can be to prevent tax evasion.
10
WITHHOLDING VAT
Some countries have a withholding VAT - the same mechanism as income withholding tax, but designed to collect VAT.
It's important to know whether withholding tax applies to your transaction, so that you take it into account when setting your price, and so that you can take any mitigating actions as early as possible, to ensure your cash flow is unaffected by tax consequences.
Tax treaties often offer protection from paying withholding tax on services, but you need to know whether your services are taxable in the first instance, and how to apply for an exemption or reduction due to a tax treaty.
The most likely scenarios are:
- no withholding tax applies as there is no domestic law imposing withholding tax
- there is withholding tax, but the treaty can be automatically applied
- there is withholding tax, but you need to provide documentation to your customer, who can then pay without deducting tax
- there is withholding tax, but you need to apply and have approval from the tax authority so that your customer can pay without deducting tax
- there is withholding tax, and your customer has to withhold, and you need to request a refund from the foreign tax authority and try to claim it back
FREQUENTLY ASKED QUESTIONS ABOUT WITHHOLDING TAX
What is withholding tax?
Tax that your customer takes out of your payment to pay their government. You're probably familiar with it - the tax your employer takes out of your pay is a form of withholding tax.
Does a tax treaty mean withholding tax automatically doesn't apply?
Generally, no. If a country has withholding tax on services paid to non-residents, it's not automatically applied by your customer. Some countries do allow your customer to apply a tax treaty, just based on their knowledge of your residency, but most don't! You often need to "apply" for the "benefit" of the tax treaty, and this could mean providing a tax residence certificate, it could mean filling out a form, it could mean suffering the withholding tax and claiming it back later. The unfortunate answer - it depends on which country.
Who is responsible for the withholding tax?
Your customer is normally responsible for the withholding tax. They are legally obliged to withhold and pay. They may be audited by the tax authorities to check whether they have been withholding at the correct rate, and suffer penalties if it's wrong.
Are there penalties if withholding tax is not withheld?
Normally yes. Tax authorities are normally strict when it comes to withholding, and your customer bears this risk, which they then will pass on to you.
Are there any other consequences for my customer if they don't withhold the tax?
Many jurisdictions restrict the deductibility of an expense if withholding tax has not been properly withheld. This makes getting it wrong very expensive - so companies in countries with withholding tax and strict rules will be very focused on getting it right and won't take any risks.
Don't I just get a credit for the withholding tax in my home country when the tax return is filed?
You can usually get a credit for withholding tax (or at least some of it) in your home country. But you need to be careful here:
- if you're not in a tax paying position, then you can't use the credit (although you might be able to treat it as an expense)
- you may not be able to use the whole of the credit (because withholding tax is withheld on the GROSS amount, and you pay tax in your home country on your NET profits)
To illustrate:
Amount | |
|---|---|
| Service fee (gross) | 100,000 |
| Withholding tax in customer's country (15% of the gross fee) | (15,000) |
| Cash received | 85,000 |
| Costs of providing the services | 80,000 |
| Profit on the service contract | 20,000 |
| Corporation tax on that profit (using a tax rate of 25%) | 5,000 |
| Foreign tax credit you can actually use (capped at the corporation tax on this income - the credit can't exceed the tax payable on this profit in your home country) | 5,000 |
| Withholding tax credit lost | (10,000) |
Is there a limit to the withholding tax credit that can be claimed in my home country?
Yes, there is. Normally the maximum withholding tax credit that can be claimed is limited to the rate agreed in the tax treaty. This means it's really important to claim the tax treaty benefit. If you are charged 10% withholding tax, and the tax treaty agrees that it's 5%, you can claim a maximum of 5% against the tax payable. That's a significant loss unless you claim it back in the foreign country.
THE DIFFERENT NAMES OF WITHHOLDING TAX
As you encounter withholding tax in different jurisdictions, you'll notice that it's called different things in different places, but the principle is the same.
01
WHT
Withholding Tax
02
NRWT
Non-Resident Withholding Tax
03
TDS or DAS
Tax Deducted at Source/ Deducted at Source
04
RT
Retention Tax
05
RWT
Royalty Withholding Tax
06
PSWT
Professional Services Withholding Tax