Withholding Tax vs. Income Tax: Key Differences

When a company or individual makes payments to foreign entities, withholding tax applies to ensure tax collection at the source. Many countries impose this tax on payments such as dividends, royalties, interest, and consulting fees sent to non-residents. The withholding tax rate depends on domestic tax laws and international tax treaties that prevent double taxation. Foreign companies receiving payments may claim tax relief in their home country, depending on agreements between nations. Businesses making cross-border payments must comply with withholding tax regulations to avoid legal complications, fines, or penalties. Proper compliance ensures smooth international transactions.

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