Withholding tax

Tax deducted at source from a payment before it reaches the investor, most often on dividends or interest paid across a border.

Example

A dividend paid from one country to a resident of another can arrive reduced by a deduction the investor never sees made.

Important

A treaty may reduce the rate and some of it may be creditable at home, but reclaiming is a process with paperwork and deadlines - never automatic, and not always worth it at small size.

Related terms

• Ordinary income — Money an investment pays you while you still own it - interest, dividends, rent, coupons - typically taxed in the year it is received.
• After-tax return — The return that remains once the tax on it has been paid. The only version of a return an investor can actually spend.
• Capital gain — The profit made by selling an asset for more than it cost, as distinct from the income the asset paid you while you held it.

Lessons that explain it

• The cost you can read, the costs you cannot, and the tax bill you did not choose — Four layers of cost sit behind one printed number, and a fund's own trading can hand you a taxable event on a position showing no gain at all. (13 min)
• Why two identical returns are taxed differently — Most tax systems care less about how much you made than about what kind of money it was and when you took it. Same return, different asset, different amount kept. (13 min)
• A decade locked up, a fifth of it paid in fees, and a tax treatment set by the structure — The main costs of a venture fund are illiquidity, fee drag that compounds, and taxes that depend on where you live and how the fund is set up. (12 min)

All 578 terms in the Investing glossary