30% Withholding Tax On Dividends For Non-US Persons

[MrPanda]

Hi,

 

I am a citizen of Singapore who is interested in buying US stocks. However, just today I realised that there is a 30% withholding tax on dividends for non-US persons who buy American dividend-paying stocks. My question is : is it still worthwhile to buy and hold such stocks (American dividend-paying stocks) as a non-american considering there is a 30% tax on dividends? I am a value investor so dividends and reinvested dividends are very important to my long-run returns ... Thanks

[pcech]

Check, if there is a tax treaty between Singapore and US in this matter. The tax treaty may stipulate a lower rate.

[MrPanda]

13 minutes ago, pcech said:

Check, if there is a tax treaty between Singapore and US in this matter. The tax treaty may stipulate a lower rate.

Unfortunately, currently there is no tax treaty between Singapore and US ...

[Gregmal]

I’ll take your word for it but I’m pretty sure a w8ben form clears the withholding. If I am wrong then I guess it’s a similar jurisdiction to the islands like cayman and Bermuda were there’s no treaty and just straight 30% which sucks. But I’ve had managed accounts in Singapore before and don’t recall this being an issue.

[PJM]

Hi - 30% WHT is correct for countries that has no treaty. MY Hong Kong accounts face the same 30% tax. Unfortunately there is no way to get credit or reclaim it as far as I know. 

[scorpioncapital]

I notice Singapore has no capital gains tax. It seems the policy of US to somewhat penalize tax havens with higher dividend withholding tax. I guess you could just buy stocks that pay no dividends or be happy you don't pay capital gains tax in exchange for higher dividend taxation.

 

[JAK]

Depends on the location, and what the alternatives are, at least for taxable accounts: 

For example, I live in France. The French have a flat 30% tax rate on dividends. Therefore, for the most part, doesn't matter which stocks I buy, I'll still pay 30% one way or another. Just some variation on who and when I pay.

• For US stocks, with W-8BEN, I pay 15% withholding tax (with a tax credit), and pay the remaining 15% (so 30% total) to France a year later.
• For UK stocks, I pay 0% withholding, but 30% to France the next year. So only difference with US stocks being who gets the tax, and I benefit from an extra 15% for a year.

Since I'll pay 30% one-way or another, my choice is really about where the returns come from (after-tax dividends and/or price appreciation), rather than US vs. non-US.

 

To give another example, in Ireland, as far as I know, dividend income is considered under income tax. Therefore, anyone earning above €36,800 would essentially see their dividends taxed at 40%, so again, in that case, its a matter of looking at returns rather than US or non-US (as 0%, 15%, or 30% withholding wouldn't really matter).   

 

However, if your local tax rate is 0%, and you could avoid that 30% friction by choosing non-US stocks (all else being equal), then it would make sense to take that into account.