Glossary / Tax and structure

Withholding tax

Withholding tax is tax deducted at source by the country where income arises before it reaches the recipient, and for fund investors it is deducted from dividends before they ever appear in the fund's return.

The rate depends on the treaty between the source country and the fund's domicile, not between the source country and the investor.

That is why domicile matters: the fund, not you, is the party claiming the treaty rate.

Where people get it wrong

Assuming your own country's treaty applies. The fund's domicile is what the source country sees.

The framework behind it Fund domicile, and the sixty thousand dollar trap sets out the rule, the arithmetic and where it breaks.

Read the framework

Related terms

Fund domicile A fund's domicile is the country in which it is legally established, and it determines the withholding tax the fund suffers on its holdings and the estate tax exposure of the person who owns it. Double tax treaty A double tax treaty is an agreement between two countries setting out which of them may tax a given kind of income and at what rate, so that the same income is not fully taxed twice. Index fund An index fund is a fund that holds the constituents of a published index in their published weights rather than selecting them, which removes manager judgement and most of the cost that comes with it.

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