withholding tax

Withholding tax is simply the government collecting a little tax early and neatly, by taking a slice at the exact moment money changes hands. Instead of waiting for you to declare and pay later, the person paying you deducts a set percentage, sends it to the tax authority, and hands you the rest.

You meet it on things like dividends from shares, interest on some deposits, rent, and payments to contractors and consultants. Here the rate depends on the kind of payment and whether you are an individual or a company, but the idea never changes, a piece of tax deducted before you are paid.

And here is the part that saves a lot of worry. Withholding tax is usually not an extra tax piled on top.

It is an advance on tax you would owe anyway. When you file your returns, whatever was already withheld is credited to you, so you either owe less or, if too much was taken, you can claim the difference back.

The one habit that pays for itself is keeping every withholding tax receipt or credit note, because that little slip is your proof you have already paid. Hold onto them, especially if you are a contractor or a landlord, and you will never risk paying the same tax twice.