Withholding Tax, Royalty

A number of countries require remitters of royalties, i.e., licensees, to withhold tax on royalties or technical assistance fees, particularly when paid to non-residents. Rates can be substantial, for example up to 25 percent. In most instances these taxes may be avoided under a tax treaty in place between the licensor’s country and the licensee’s/withholding country. However, avoiding such taxes will usually require various permissions or certifications from the licensee’s government and/or tax authority. In any event, liability for such withholding tax should be apportioned in any licensing agreement, as well as the obligation to obtain any necessary tax clearance documents.

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