Dividend tax is tax that is paid on the income that an investor receives as a dividend payment from stocks. Dividend tax is not automatically taken out in most cases and must be dealt with by the investor.
In many countries, small investors do not pay any tax at all on dividends. For instance, in the UK, investors do not pay any tax on dividends unless they receive more than £2000 in a given year.
There are usually different rates of dividend tax that relate to your overall tax position. For example, in the UK, basic rate taxpayers pay 7.5% dividend tax, while higher rate taxpayers pay 32.5%.
Usually, individuals pay tax on their worldwide income. So, regardless of whether the dividend comes from a local company or a foreign company, the income from the dividend is likely to be liable for tax.
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