Music Business

Withholding Tax: Why Your Royalty Payout Is Smaller Than What Is In Your Statement

Your statement may say one number, but your payout says another. Here is how withholding tax works on royalties from the US, the UK, and Nigeria, and what artists can do about it.

Adaugo Ugwu

November 2, 2026·6 min read

There is often a not-so-subtle gap between what a creator sees in their statements and what actually lands in their bank account. Request an explanation, and the response is quite typical: tax. Some distributors are gracious enough to offer more than a breakdown of numbers, with a simplified explanation of why the government of another country could lay claim to your earnings, but others may not. So here we are, exploring the infamous withholding tax and why it might differ depending on where your music is streamed.

The Grand Old Concept of Tax

Withholding on royalties might feel unfair to the one who ends up receiving less, but it is completely legal, and the reason is really simple. Think of royalties as income earned, just like the salary of a 9-to-5er or a company’s profit after a quarter. That income is taxable according to the laws of the country where it was earned.

Tax is a charge imposed by the government on individuals, companies, and transactions, and it is a source of revenue that potentially funds infrastructure and public services. By imposing taxes, what the government is saying is that a part of whatever income is earned within its borders has to go into making the country better.

What is Withholding Tax

Now there are different types of taxes. Most of them are described by the way they are collected or earned. Company income tax, personal income tax, and value-added tax are very good examples. Today, however, we are sticking closely to withholding tax, as it relates to music royalties.

Withholding tax is deducted at source. When a payer in one country pays royalties to someone in another, the payer’s country may tax that income before it even leaves for the payee. A part of the income is deducted straight from the source without ever reaching the earner.

How much is deducted, if at all, largely depends on the countries involved. Bilateral agreements such as double tax treaties often reduce or remove the deduction between participating countries, but only if you qualify and claim it.

The United States

Most major streaming platforms and many distributors are based in the US, so US tax law matters even if you have never set foot in America. Under the Internal Revenue Code (IRC), anyone paying U.S.-sourced income to a nonresident alien must withhold tax at 30%. However, this law applies with due regard to any treaty obligation of the U.S. In other words, if the U.S. has a treaty that allows for a lower rate with your country, that rate applies instead of the 30%.

There are two important details to note here. First, only US-source royalties are affected, such as US streams, not your royalties from other territories. Second, the application of a treaty rate is not automatic; you have to claim it. This is done by completing a Form W-8BEN and giving it to the payer, who in turn reports the payment on a Form 1042-S. Even where a treaty fully exempts the income. And if you give no valid W-8 form, expect the full 30%. CD Baby, for example, says it may withhold 30% of your US royalties in that case.

The IRS list of US income tax treaties includes four African countries: Egypt, Morocco, South Africa, and Tunisia. Nigeria, Ghana, and Kenya do not appear on it, so an artist based in any of those countries should not assume a reduced rate.

The United Kingdom

UK law, specifically the Income Tax Act of 2007 (ITA), requires a payer to deduct income tax at the basic rate on certain royalties where the owner’s usual place of abode is outside the UK. The current basic rate is 20%. This law explicitly includes certain royalties, with two exceptions being copyright in films and video recordings, and payments for copies exported from the UK for distribution abroad.

A treaty can lower this. But while a Double Taxation Agreement (DTA) does alter the tax rate, the benefits are not applied automatically. His Majesty's Revenue and Customs (HMRC) says the non-resident recipient must make a claim and formally prove eligibility, either to prevent or recover the 20% deduction. Individuals use form DT-Individual to get relief at source or to claim a repayment. A UK payer may also pay gross if it reasonably believes the recipient qualifies under a treaty.

The UK–Nigeria treaty (Article 12, in the 1987 Order) caps UK tax on royalties at 12.5% of the gross amount, and HMRC’s treaty digest still lists 12.5% for Nigeria.

Nigeria

Nigeria also withholds tax. The Deduction of Tax at Source (Withholding) Regulations 2024 provide that when a Nigerian label or platform pays royalties to an artist or licensor, it withholds 10% for corporate recipients and 5% for non-corporate recipients, whether resident or not. This domestic rate applies unless it exceeds the cap in the relevant treaty. Even with the Nigeria Tax Act 2025, these rates have not changed.

For Nigerian-resident artists earning abroad, the Nigeria Tax Act 2025 matters in two ways. Section 120 lets a Nigerian resident credit tax paid abroad against Nigerian tax on the same income, capped at the lower of the Nigerian tax attributable to that income and the foreign tax paid. Section 163(1)(s) exempts “dividend, interest, rent or royalty derived from outside Nigeria and brought into Nigeria through approved channels”. The Act does not define “approved channels,” and it repealed the old exemption for artists’ foreign earnings, so you may have to ask an adviser how these provisions apply to your catalogue income.

What to do now

• Put your tax forms on file. Complete a W-8BEN with each US-based distributor or platform so they do not default to 30%.

• Get a tax ID and a residence certificate. Treaty claims typically depend on proving where you are tax resident.

• Read your statements for deductions. Look for withholding lines and keep documents for your own filing.

• Keep records by territory. You may need them to claim a foreign tax credit at home.

This post is general information for educational purposes only, not tax advice. Rates and treaties change; for legal and tax advice, please contact a lawyer.