When US companies pay dividends to foreign investors, the IRS requires withholding tax at the source. Your broker deducts the tax before the dividend reaches your account. The default rate is 30%, but most investors can reduce this significantly through tax treaties.
Key Facts About Dividend Withholding
- Withholding applies to all US-source dividends - regular dividends, qualified dividends, and capital gain distributions from REITs
- Unlike US residents, foreign investors don't get preferential rates on "qualified dividends" - treaty rate applies to all
- Withholding happens automatically at the broker level - you receive the net amount
- You generally cannot get a refund without filing a US tax return
- Some countries allow foreign tax credits for US withholding against your home country taxes
Without a valid W-8BEN on file, you pay the full 30% rate. This is the most important tax form for foreign investors.
The following table shows dividend withholding rates for portfolio investors (generally less than 10% ownership). Rates may differ for substantial shareholdings.
| Country | Dividend Rate | Annual Impact ($100K)* | Notes |
|---|---|---|---|
| 🇦🇺Australia | 15% | $300 saved vs 30% | Standard treaty rate |
| 🇧🇷Brazil | 15% | $300 saved vs 30% | Tax credit available |
| 🇨🇦Canada | 15% | $300 saved vs 30% | Popular cross-border |
| 🇨🇳China | 10% | $400 saved vs 30% | Excellent rate |
| 🇫🇷France | 15% | $300 saved vs 30% | EU standard |
| 🇩🇪Germany | 15% | $300 saved vs 30% | EU standard |
| ðŸ‡ðŸ‡°Hong Kong | 30% | $0 saved | No treaty |
| 🇮🇳India | 25% | $100 saved vs 30% | Higher than most |
| 🇯🇵Japan | 10% | $400 saved vs 30% | Excellent rate |
| 🇰🇷South Korea | 15% | $300 saved vs 30% | Standard treaty |
| 🇲🇽Mexico | 10% | $400 saved vs 30% | Excellent rate |
| 🇷🇺Russia | 10% | $400 saved vs 30% | Verify application |
| 🇸🇬Singapore | 30% | $0 saved | No treaty |
| 🇨ðŸ‡Switzerland | 15% | $300 saved vs 30% | Standard treaty |
| 🇹🇼Taiwan | 30% | $0 saved | No treaty |
| 🇦🇪UAE | 30% | $0 saved | No treaty |
| 🇬🇧United Kingdom | 15% | $300 saved vs 30% | 0% on interest |
*Assumes 2% dividend yield. Actual savings depend on your portfolio's dividend yield.
Here is the concrete difference treaty rates make for a UK investor with $500,000 in US dividend-paying stocks.
Annual Dividend Withholding Comparison
This doesn't account for compounding from reinvesting saved amounts. Filing W-8BEN correctly is one of the highest-ROI tax actions for foreign investors.
Ordinary vs. Qualified Dividends
For US residents, qualified dividends get preferential rates. For foreign investors, this distinction doesn't matter - you pay the flat treaty rate regardless.
Capital Gain Distributions
When mutual funds or ETFs distribute capital gains, these are subject to 30% withholding. This is one reason many prefer Ireland-domiciled ETFs.
Return of Capital
Return of capital distributions are not subject to withholding as they're considered a return of your investment, not income. However, brokers sometimes misclassify these, leading to over-withholding. Review your 1042-S form annually.
Real Estate Investment Trust (REIT) dividends are generally subject to the full 30% withholding rate, even if you have a tax treaty. Most treaties specifically exclude REIT dividends from reduced rates.
A few treaties (like the UK treaty) provide reduced rates on REIT dividends under certain conditions. Check your specific treaty if REIT investing is important to your strategy.
If you're building a dividend-focused portfolio, consider the higher withholding drag on REITs compared to regular corporate dividends.
Practical Approaches for Foreign Investors
- Always file W-8BEN: Step one - without it, you pay 30% on everything
- Consider Ireland-domiciled ETFs: These benefit from the Ireland-US treaty (15% rate) and often have 0% withholding to many non-US investors
- Focus on growth over dividends: Capital gains on US stocks are generally not taxed for non-residents
- Claim foreign tax credits: Check if your home country allows credits for US withholding
- Review your 1042-S annually: Verify correct withholding and correct errors promptly
- Avoid REITs in taxable accounts: The 30% withholding on REIT dividends creates significant drag
Many sophisticated investors use Ireland-domiciled ETFs (like iShares with "UCITS" in the name) instead of US-listed ETFs. Ireland has a 15% treaty with the US, and many countries have 0% treaties with Ireland. See the ETF guide for details.
Claiming your reduced withholding rate is straightforward if you follow these steps:
Step-by-Step Process
- Complete Form W-8BEN: Your broker provides this during account opening, or you can update anytime
- Enter your treaty country: Line 9 certifies your country of tax residence
- Specify the rate: Line 10 should state the treaty article (usually Article 10) and reduced rate
- Provide your foreign tax ID: While not always required, this helps avoid processing delays
- Renew every 3 years: W-8BEN expires - set a reminder to renew before expiration
For detailed instructions on completing each field, see the comprehensive W-8BEN guide.
If your broker withheld more than your treaty rate (usually because W-8BEN wasn't on file), your options are limited.
The US generally doesn't have a simple refund procedure for over-withheld dividend tax. To recover excess withholding, you typically need to file a US tax return (Form 1040-NR), which can be complex and may not be cost-effective for small amounts.
The best approach is preventive: ensure your W-8BEN is current and correctly filed before you receive any dividends. If opening a new brokerage account, don't make your first trade until your W-8BEN is confirmed as accepted.