Withholding tax rates may vary country to country. The United States has tax treaties in place with many countries that offer favorable rates or even exemptions from withholding tax. In general, the following tax rates may be applied to withholding:
Exempt. The foreign country may recognize certain account registrations—such as tax-deferred retirement accounts—to be exempt from withholding tax altogether.
Favorable. The foreign country may recognize certain account types to be eligible for favorable or reduced withholding rates. These are often referred to as treaty rates.
Unfavorable. If the foreign country determines that a particular distribution is ineligible for a preferential treatment, a global or unfavorable rate is applied, resulting in the maximum withholding tax rate.