What is the difference between withholding tax and income tax ?

Is withholding tax and income tax the same ? What is the difference between them ? How does the withholding tax work ?

Withholding tax is a type of income tax, but it is not the same as an income tax. The difference is, that withholding tax is withheld at the source of income. It is withheld or deducted from the income due to the recipient. For example:

Regular income tax
Company A will receive payment from Company B. Income tax will be paid by Company A.

Withholding tax
Company A will receive payment from Company B. Withholding tax will be withheld by Company B. So in this case Company A will receive taxed income. Withholding tax is often levied on wages, interest, dividends and royalties. The purpose of withholding tax is to ensure, that the taxes will be paid first and will be paid on time.