This clause decides who pays the taxes that governments require to be deducted from payments. When you receive money for services or goods, the payer may be legally required to withhold (hold back) a percentage and send it to tax authorities instead of giving it to you. If the clause says you bear this obligation, you receive less money than agreed, even though the full amount was "paid." This matters because it directly reduces your cash in hand. In the US, for example, independent contractors often face 1099 withholding; in the UK, similar rules apply to non-resident payments.
Push back hard on this clause—try to make the payer responsible for withholding taxes, since they control the payment and know their tax obligations. If you must accept withholding, get the contract to specify the exact withholding rate and require the payer to provide tax documentation proving the money was actually sent to authorities. Never agree to vague language like "applicable withholding taxes" without knowing the percentage. ---
Frequently Asked Questions
What does this clause mean in simple terms?
This clause decides who pays the taxes that governments require to be deducted from payments.
Why should I care about this clause?
When you receive money for services or goods, the payer may be legally required to withhold (hold back) a percentage and send it to tax authorities instead of giving it to you.
What are my options?
If the clause says you bear this obligation, you receive less money than agreed, even though the full amount was "paid." This matters because it directly reduces your cash in hand.
How does this affect small businesses?
In the US, for example, independent contractors often face 1099 withholding; in the UK, similar rules apply to non-resident payments.