facebookHi, is there a simple explanation to what "withholding tax" is? I would like to get into investing, but I hear this term and the high numbers (15/30% etc) and I'm wondering what is the implication? - Seedly

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Anonymous

21 Jan 2020

Stocks

Hi, is there a simple explanation to what "withholding tax" is? I would like to get into investing, but I hear this term and the high numbers (15/30% etc) and I'm wondering what is the implication?

Want to invest, but not sure if I would misjudge a good investment due to this thing called "withholding tax". How to avoid it or be mindful of it?

Discussion (5)

What are your thoughts?

It is a UPFRONT tax, paid directly at source. It is usually levied on foreigners. They scared foreigners will run away, so they 'withhold' the tax upfront.

The withheld tax rate is typically the highest tax rate. The foreigner will need to declare his tax status to the government, and will receive refund (thus the term, 'withholding') of the tax money held earlier according to his tax treatment.

For example, if u were paid $1 in dividend by the company u invested in. If there is a 30% withholding tax, only 70cents will be paid directly to u. 30cents will be paid to the government.

To get back any of the 30cents, u will need to file a claim with the government.

Depending on the tax treatment between our 2 countries, u can claim for reduced or exemption of withholding tax. ​​​

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Its simply a tax government levy upon dividends paid by local corporation to foreign investers.

Implication : it just reduced your starting dividend yield

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