What is withholding? | Investment Glossary

While withholding is a type of tax; In its simplest definition, it means tax deducted at the source. So what is the purpose of withholding?

Withholding tax is a type of tax collected by deducting the tax amount for corporate and income tax-related earnings before the income is passed to the owner and depositing it to the tax office on behalf of the owner of the business. While the withholding cannot be expressed in a fixed amount, it also varies according to the payment type. Also, withholding is calculated as a percentage of earnings.

The purpose of withholding is to ensure that tax collection can be done more securely and to reduce tax costs. Because withholding tax is withheld before it passes to the income holder, it helps to pay tax income faster and reduce the risk of leakage.

Many of the income from securities, particularly stock and bond gains, are taxed through withholding. Since the deduction is made by the brokerage house or bank where the transactions are made, investors do not need to submit a separate declaration.


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