Why should you be concern about withholding tax as a dividend income investor?
As a foreigner investing in other countries stock exchanges, unless your country has a tax treaty with that country, there is usually a tax on the dividend income or income in general.
The question is how much.
In this past article I explained my experiment to see how much withholding tax is levied on my Telefonica dividend purchase. The conclusion is that:
If you as an international investor invest in a international ADR listed both on the US stock exchange (as an ADR) and on its own stock exchange and you purchase the ADR, only the home country’s withholding tax is levied and not an additional 30% withholding tax.
A list of countries’ withholding tax rates
Here is a list of countries’ with withholding taxes updated to 2015:
Do note that tax policy is subject to change and it is one area that for passive dividend income investors we need to contend with.
Also that this list is against US residents so for international investors it should be used as a guidepost.
What I recommend is to evaluate which is the more tax friendly international countries and then do a screen of good stocks there.
Then do a google up their latest withholding tax policy.
Saturday 13th of August 2011
Thanks for your website. I believe I went through the same process trying to understand withholding tax and how to minimize them as I am a very cost conscious investor. I personally own quite a number of US stocks and it really pains me to see the 30% withholding taxes. I even tried asking my US brokerage if I can open an IRA account(similar to our SRS account) as a non-resident investor and the answer is of course "no".
Anyway, to find the applicable withholding tax to Singaporeans, we just need to visit IRAS website and read through the available tax treaties. If there is a comprehensive tax treaty with a certain country, chances are likely that we have a lower withholding tax rate than the normal rates.
One BIG concern which I currently have with investing in US stocks now is withholding tax on capital gains. Currently, it is not applicable to most foreign investors. But I read a statement from iShare's ETF prospectus that "Beginning in 2013, withholding will be imposed on all distributions, redemptions and proceeds from sales of Fund shares payable to shareholders that are non-U.S. entities, unless certain disclosures are made by such non-U.S. entities as to any of their direct and indirect U.S. owners."
I'm now checking with my US brokerage on the exact interpretation and application of the above statement. I'm also wondering if it is unique to ETFs or stocks in general? If it is true that a withholding tax (not sure of the rate either) will be levied on capital gains from sale of US equities in general, it will affect adversely my long term portfolio as I'm not intending to sell my US-based stocks and ETFs anytime before 2013. If you are aware of any info on this matter, your kind enlightenment will be greatly appreciated. Thanks!
Saturday 13th of August 2011
hi Ashley! This withholding tax is really a pain in the butt but not something new to us. The tax on capital gains if true really will reduce the appeal of international investing.
I have not heard about this though and hope that you can keep us posted should you hear much. Best Regards!