If you want to buy US listed shares, fill out a W-8BEN form (American stocks for foreign investors) 1


The rise of online platforms over the past decade has been great. From HL, to Youinvest, to interactive investor, these platforms allow individual investors like you and I to buy shares all over the world for a reasonable price. With this easy access to US, European and Asian stocks, many people forget to do research on how the system in these overseas countries works in a different way to ours.




One example of this is Dividend Withholding Tax (DWT). If you buy shares in a foreign company, the dividend you receive from that company will be subject to DWT. This means that as a foreign investor, you do not get the full amount of dividends a foreign company pays. Instead of getting the full dividend, a certain percentage will be held back as a withholding tax. In some instances you can claim this back from the country where the company you have invested in is headquartered, but it is rare for small investors to do so. To see the full list of dividend withholding tax for different countries and to understand more about it, click through to this post.

Dividend Withholding rates in most countries are about 30% and as you can imagine, this can significantly eat into the returns of an investor. Thankfully there are easy to complete forms available that allow you to pay withholding tax at a lower rate. The best example of this is the w-8ben form for American stocks.

The W-8BEN form : reduce your dividend withholding tax from 30% to 15%

The W-8BEN form, which is available from your broker allows you to receive dividends from US listed stocks net of withholding tax which is charged at a rate of 15% instead of the usual 30%. This is a huge saving which cannot be underestimated.

Let’s look at an example to see the savings you can make by just filing out this form.

Say you own 100 shares in Exxon Mobil (XOM). As Exxon pays, $2.92 a share in dividends, your 100 shares will get you $292 a year.

Let me correct that, if you are a US resident and own 100 shares in Exxon Mobil, you will get $292 a year in dividend income. If you are a foreign investor, i.e. a non US investor, you will only receive $204.4. This is because $87.6 or 30% will automatically be deducted as withholding tax. That is a lot of money to give up.





Luckily for UK investors, there is a W-8BEN form available that allows you to pay withholding tax at a reduced rate of 15%. So if you own 100 shares of exxon and you complete this form, you should receive $248.2 in dividend income. $43.8 or 15% is still deducted from your dividend but this is a whole lot better than $87.6 being deducted.

As you can see, it is certainly worthwhile filling in the W-8BEN form. And the US is not the only country with this type of tax treaty. Canada is another for example. For a full list of withholding tax rates and the relevant forms to complete to get discounted tax rates, please have a look at my post on ‘dividend withholding tax rates for different countries across the world.

 

 

Please like & share: