Withholding tax

Income, which arises in a country, is taxed in that country irrespective of which State the recipient is resident of. Income from dividends, interest, royalties and technical fees is taxed on this principle. The withholding tax is levied on the gross income because such a measure obviates the difficulties of the administration in ascertaining apportioning expenses to compute the net income. In case there is double taxation avoidance agreement, tax liability of a foreign enterprise is kept at a low level and such reduced rates are of major importance for investing in a country.