Foreign Dividend Tax Basics Made Simple

Terms You Will Hear

Banks or brokers often list dividend foreign tax withheld, dividend tax withholding, or dividend tax withheld on payment slips. These are amounts that never reached the investor because they were kept back and sent to tax authorities.

Some places use terms like dividend withholding, dividend withholding tax, or dwt tax, but they all refer to the same thing. It’s a slice of the dividend held back at source.

Markets apply different rules. Some impose a standard foreign dividend tax, while others use regional or treaty-based rules. This often leads to claims or credits later.

In South Africa, investors may see a rate of 20%, listed as south african dividend withholding tax.

Statements might show Withholding Tax on Dividends or withholding tax for dividends, depending on the broker or country. Either way, it reduces the amount paid into the account.

How Withholding Works in Practice

Let’s say a U.S. share pays a dividend. The broker might apply US dividend withholding tax at 30% for foreign holders. If a treaty applies, this may fall to 15%, but US dividend withholding tax for non residents still takes a cut off the top.

In Switzerland, a listed company will likely apply Swiss tax on dividends at 35%. Some investors will also see this appear as withholding tax on Swiss dividends.

Statements often show figures for foreign tax withholding on dividends and foreign tax paid on dividends, which can be used to claim back part of the withholding via a foreign dividend tax credit.

Each market has its own foreign dividend tax rate, often linked to specific treaty rules. Certain structures like ETFs may also show foreign dividend tax withholding on reports.

At the same time, home countries charge income tax on foreign dividends regardless of what was withheld abroad. In some cases, investors also face dividend tax on foreign dividends locally.

Treaties That Cut the Rate

Countries sign double taxation Agreements to stop two revenue offices from taxing the same cash. These agreements limit how much tax one country can charge and allow claims for refunds.

Double taxation treaties reduce rates for many South African residents. For example, double taxation treaties US bring the U.S. rate down for eligible investors. The double taxation treaty US UK gives a similar reduction for British residents.

The full list of US tax treaty countries can be found through official sources. To benefit, investors usually need to submit forms before dividends are paid. If submitted in time, the adjusted amount will show as dividend tax US foreign investors.

Claiming Back Extra Tax

When filing local returns, investors use documents from brokers to claim foreign credits. These often include foreign dividend tax credit amounts and details about foreign dividends. This helps avoid double tax.

Some shares qualify for better tax rates. These are usually qualified dividends from foreign corporations, but qualification depends on holding periods and treaty rules.

Label each dividend income from foreign company entry clearly. Some will be foreign dividends qualified, which makes filing easier and improves tax efficiency.

Companies also face tax. The taxation of dividends received by a corporation depends on whether the payer and receiver are in a treaty country. Individuals, on the other hand, deal with the taxation of foreign dividends in their personal returns.

Keep all documents showing tax on dividends from foreign companies, especially those with withholding lines. These will help support any future refund claims or tax audits.

Simple Planning Tips

Use a mix of shares from countries that have treaties in place. Before buying, check which US tax treaty countries apply to your tax profile.

Prefer instruments that pay qualified dividends from foreign corporations where possible, as these often lead to lower rates locally.

Mark every foreign dividends qualified payment clearly when tracking your statements. This simplifies your end-of-year tax return.

Hold onto all proof of tax on dividends from foreign companies and other statements, ideally for five years. If there’s a mismatch between what was withheld and what should have been, brokers or tax consultants may help.