How to avoid S&P 500 ETF dividend withholding tax for non resident ? (Is it possible ??)

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azb1

Mentor Group Gold
US apply Dividend withholding tax for non resident.
Which domicile S&P 500 ETF is good to avoid this withholding tax ???
Most developed country provide S&P 500 ETF. which is good for avoid dividend withholding tax??
Like Ireland, Switzerland , Liechtenstein or UK based ETF to avoid withholding tax.

Or Is it possible???

Hope I convey my question rightly.
Sorry for bad English
 

Golden Fleece

Entrepreneur
US apply Dividend withholding tax for non resident.
I am no expert, but this seems to be the general rule:
Nonresident aliens are subject to a dividend tax rate of 30% on dividends paid out by U.S. companies. However, they are excluded from this tax if the dividends are paid by foreign companies or are interest-related dividends or short-term capital gain dividends. The 30% tax rate can also be lower depending on the treaty between your home country and the U.S. As a result, it's important that you contact your brokerage firm to verify the rate.
[URLunfurl="true"]Do Non-U.S. Citizens Pay Taxes on Money Earned Through a U.S. Internet Broker?

If the dividend income is from a U.S. source and paid to a nonresident, it is reportable for any amount in excess of zero. Withhold at 30% or lesser tax treaty rate (see Chart C, Withholding Tax Rates for Purposes of Chapter 3, in IRS Publication 515 as well as IRS Publication 901.) The beneficial owner of the income may claim the benefit of the tax treaty article which deals with "Dividend Income." The beneficial owner may claim the lesser tax treaty rate by filing Form W-8BEN with the withholding agent. The withholding agent will report the payment on Forms 1042 and 1042-S, even if the entire amount of income is exempt under a tax treaty.
 

azb1

Mentor Group Gold
 
Last edited:

celizo

Active Member
It depends the tax treaty between your country of residence and the USA.

For most europeans countries it's 15%.
In this case, no real difference.
US domiciled ETF dividends (i.e. SPY) will be taxed 15% on your personal level.

Irish UCITS ETF dividends are taxed 15% too on the ETF level (tax treaty between Ireland-USA).

If your residence has no trax treaty with the US, it will be 30%, and UCITS ETF are more advantageous in this case.

UCITS ETF avoid also others risks, but depending again your country of residence.
 

pixbix

New member
I also receive dividends from US. I have a Revolute Account. Funny, they chare me randomly. Sometimes only 5%, others times 10%, others 16 and 30%. I don't know why. I was thinking maybe because the companies are in different states, or they have different accounts.

U.S.-Romania Treaty
Under the current Treaty, the withholding tax rates on U.S. source FDAP income are reduced from 30 percent to (i) 10 percent for dividends, (ii) 10 percent for interest, and (iii) 10 or 15 percent for royalties (depending on the type of intangible property being licensed).7 May 2014
 

fellzombie

New member
You can use a synthetic accumulating ETF like:
Invesco S&P 500 UCITS ETF IE00B3YCGJ38
iShares S&P 500 Swap UCITS ETF IE00BMTX1Y45

The fund avoids withholding tax through a collateralized swap and reinvests the "dividends", increasing the value of the fund.

You can then "collect" the dividends by selling a proportional amount of the fund. If you are tax resident in a jurisdiction without capital gains tax, this will also be tax free.
 

Martin Everson

Offshore Retiree
Staff member
Mentor Group Gold
Elite Member
iShares S&P 500 Swap UCITS ETF IE00BMTX1Y45

The fund avoids withholding tax through a collateralized swap and reinvests the "dividends", increasing the value of the fund.


That is a Synthetic ETF using Total Return Swaps :confused:. You need to understand the risk you are taking buying a index fund using synthetic replication as opposed to physical replication.

At the very least you better know who the Swap counter-party is and what collateral was posted to back the swap?



I would not touch it with a barge pole. For the average man in the street it has complex unacceptable risks.
 

fellzombie

New member
I mentioned it is synthetic, yes.

UCITS synthetic ETFs are highly regulated, must be over-collateralized and the swap is reset daily. So your maximum risk (in case all swap counterparties go bankrupt overnight) should be the daily performance difference of the collateral basket vs the index.

You can see the swap counterparties and collateral basket for the mentioned ETF here: Country Splash

It's one of the biggest UCITS ETFs, with over $12bn AUM.

In my opinion the risk of synthetic ETFs is comparable to securities lending, which the most popular physical replication ETFs (CSPX, IWDA etc) do anyway. However, securities lending achieves a few basis points of annual overperformance for the investor, while synthetic replication of S&P500 gives tens of extra basis points due to avoiding withholding tax.


In any case, physical replication is more straight-forward and easier to understand. If it brings you more peace of mind at the expense of slightly worse performance, so be it. I was simply answering the question of how to avoid dividend leakage.
 
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