GLOSSARY TERM
Withholding Tax
Withholding tax is tax that is taken from investment income before the money is paid to you.
What does this mean in practice?
This often happens with dividends and sometimes with interest. For example, if a foreign company pays you a dividend, part of that payment may be withheld for tax before it reaches your account. The amount you actually receive is therefore lower than the original payment. Depending on your country, you may be able to claim part of that tax back or use it as a credit, but not always in full.
Example
A company pays a €100 dividend, but 15% is withheld for tax before payment. You receive €85 instead of the full €100.
Why it matters
Withholding tax affects the income you actually keep from your investments. It is especially important in international investing, because it can reduce net returns and make foreign dividends less valuable than they first appear.
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