Dividend withholding tax is a form of withholding tax charged by the country where a company is resident on the dividend it pays. The payer deducts the tax before the money leaves and hands it to the tax authority, so the shareholder receives a net amount. It applies mainly to foreign investors. Each country sets its own statutory rate: the United States charges 30% on dividends to non-residents, while the United Kingdom charges none on ordinary dividends. It is also known as dividend tax withholding.
Because the investor's home country may also tax the dividend, double taxation treaties cap the source country's rate, commonly at 15% for portfolio investors and less for large corporate shareholders. An eligible investor obtains the lower rate through tax treaty relief, either at source or by a later refund claim, and can usually credit the remaining tax at home under double taxation relief. A parallel charge on bond income is the interest withholding tax.