What is Withholding Tax?

A withholding tax is an amount of tax that is withheld from payments to suppliers, and paid directly to government at regular intervals.

Withholding tax rate structures and calculations can be complex and may vary for different types of activity or area. For example, different tax rates and thresholds may apply to each tax type and within each tax type to different services, goods, interest payments etc.

In addition:

• the percentage of tax that must be withheld from the payments to a supplier may vary according to the taxable value of the invoices being paid.
• the tax rate may vary according to the cumulative taxable payments made to the supplier throughout the tax period.
• a fixed amount of tax may be required at each threshold, in addition to the variable percentage.
• an initial non-taxable amount may be allowed each period on which tax is not calculated.
• a minimum amount of tax may need to be withheld and if the calculated tax value is less no tax is withheld.
• the withholding tax may need to be calculated on the gross, net or tax values of the payments being made (or received).