List of Countries with 0% WHT on dividend-paying stocks to non-residents taht are accessible on Interactive Brokers

[WorldCitizen99]

(Scroll down to the Summary for the bottom line)

If you invest in stocks on the respective stock exchanges of these countries as a non-resident, there will be no withholding tax (WHT) on the dividends paid out, as per their domestic law.
Of course, depending on where you are tax resident, you might have to pay tax on the dividends as foreign-source income, but no tax will be withheld at source.

Australia* (only if dividends are "fully-franked"), Bahrain, Brazil, China* (incorporated offshore and listed on HK/US exchanges), Cyprus*, Estonia*, HK*, Hungary*, Jordan, Kuwait, Latvia*, Malaysia (excluding REITs), Malta*, Mauritius, Oman, Palestine, Qatar, Singapore*, Sri Lanka, Turkey* (REITs only), UK*, UAE*, Vietnam
Bermuda, Caymans, Ecuador, Fiji, Gibraltar, Iraq, Jersey, Guernsey, Isle of Man, Kosovo, Libya, Liechtenstein, Macau, Myanmar, St Lucia, Zimbabwe

US and Canada have high default WHT rates but have the following exceptions:
US* (0% for Canadians if done from Registered acct eg RRSP - excluding TFSA)
Canada* (0% for US residents if invest from registered acct)

*national currency can be traded on Interactive Brokers (IBKR)

source:
https://topforeignstocks.com/2022/01/19/dividend-withholding-tax-rates-by-country-for-2022
source:
https://taxsummaries.pwc.com/quick-charts/withholding-tax-wht-rates
Apparently the following countries have bilat agreements with US residents to pay 0% WHT
India*
Argentina
But if you are a US resident you will pay domestic tax so I didn't list them above


List of countries with 0% WHT rates with stock exchanges accessible from IBKR, subject to exceptions listed above
Australia, US, Can, Estonia, UK, Hungary, India, Singapore, HK

https://www.interactivebrokers.com.sg/en/whyib/global_access.php

Summary
If you want to pay 0% tax (both WHT and domestic tax) on dividend-paying stocks, you can invest in the following countries using IBKR:
Note: your tax residency would need to exempt foreign dividend income to achieve this (i.e. you live in a tax haven orterritorial tax country; have a remittance basis tax arrangement, or are investing from a registered investment account, or there is special rule to exempt foreign dividend income)

Australia (fully-franked dividends only)
Hungary
Estonia
UK
Singapore
Hong Kong
US (Chinese companies incorporated offshore and Canadian RRSPs)
Canada (US residents investing from registered accounts)

There are 2 strategies for generating cash-flow from stocks:
1. Buy dividend-paying stocks - you get immediate cash flow every few months and will pay tax at dividend rates in the same year
2. Buy non-dividend paying stocks and hold for the long term and sell as many as are needed when cashflow needs arise. - you will defer taxes until they are sold and will pay cap gains rates.

Apparently the research shows that, up to now, you have gotten a better total return from strategy 2 in the long run
I don't know if the analysis factors in taxes or not. I doubt it does bc every country has different rates
Thoughts? Insights?

*This is my own research and is not financial advice. I am a retail investor with no financial certifications*

I should say that the above is only in theory. There might be details hidden in the domestic tax codes that are not apparent from these generic WHT tables. Any decision to buy on a foreign stock exchange should be made with a tax professional to confirm the above.
Also, I only researched what was accessible from the IBKR platform, bc it is regarded as the most global platform in scope. To buy on some of the more obscure exchanges you would have to check the account eligibility requirements with each exchange.

 

[WorldCitizen99]

Update: the 1st table of WHT rates does not distinguish whether the rate applies to individuals or corporations. For example, Hungary has a 0% WHT rate but when one digs into the tax summary on Deloitte, the rate is only 0% for payments to corporations. It is 15% for payments to individuals. So it is only a starting point and needs to be confirmed by using the tax summary sheet.

https://www.dits.deloitte.com/#TaxGuides
Since no one has answered this post, I will just post useful info re: dividend WHT as I come across it.

1st fact - if a 'non-resident alien' invests in US-domiciled companies or ETFs on a US exchange, the investor will be subject to a 30% dividend WHT, unless their country has a tax treaty with the US that reduces the rate. The best rate you can get in the latter case is 0% (Canadians investing from RRSP accounts) and then next best is 10% (tax residents of Bulgaria, Romania, Russia, China, Japan, and Mexico). Standard tax-treaty rate is 15% but if you cannot avail yourself of that, investors tend to go with Irish-domiciled US ETFs since the Irish-US tax treaty rate is 15% (see column 6).
Ignore column 7 - the 5% rate is only achievable if the investor is a company that owns a significant fraction of the dividend-paying company so this will not apply to retail investors trading in public companies.

Note: Depending on the ETF, part of the dividend distribution might be composed of short-term capital gains and/or interest (which are normally non-taxable), so the taxable portion of the dividend might be lower.

https://www.irs.gov/pub/irs-utl/Tax_Treaty_Table_1_2019_Feb.pdf
All of the above assumes that the dividend income is not effectively connected to a US trade or business (not ECI). In that case, it is referred to as FDAP - income that is Fixed, Determinable, Annual or Periodic - and includes dividends, interest, rent, pension and annuities among other things.

A miscellaneous point is that the WHT rate may be irrelevant if the taxpayer pays a domestic tax rate higher than the WHT rate and receives a foreign tax credit from the home country's tax authority. E.g tax treaty gives 15% but person pays 20% on foreign dividend income to their home government and gets tax credit for 15% of that 20% bc of the WHT paid.

 

[WorldCitizen99]

When investing in ETFs that pay dividends, there can be multiple layers of WHT if the ETF holds stocks that are from different jurisdictions.
For example, let's sat a Canadian tax resident buys an ETF domiciled in UK on the London stock exchange and the ETF holds stocks from the US and UK.
DIvidend WHT will be charged on any dividends paid by the US company to the UK ETF at a rate of 15% as per the US-UK tax treaty (assuming it doesn't qualify for the direct dividend rate). Dividends paid from the UK holdings to the UK ETF will not be taxed as far as I can tell. Then when the dividend from the ETF is paid out to the Cdn investor, according to the WHT table, there will be no dividend WHT charged by the UK. There will only be Cdn domestic tax on the foreign-source income to pay.

So it seems that when it comes to tax avoidance, investing in individual companies via exchanges in Hong Kong, Singapore and UK will achieve this, and investing (via the same exchanges) in ETFs that hold stocks of companies incorporated in these same jurisdictions (or any on the list of 0% WHT countries listed above) will allow the tax-free party to continue, at least from the withholding POV. One could cover a signficant part of the global market this way. To include the US however, the best most investors can do is 15% WHT via an Irish-domiciled ETF, which also has the huge added benefit of avoiding the issue of US estate taxes one would face if they were to invest directly thru a personal brokerage account and claim the treaty benefit.

 

[JackAlabama]

When investing in ETFs that pay dividends, there can be multiple layers of WHT if the ETF holds stocks that are from different jurisdictions.
For example, let's sat a Canadian tax resident buys an ETF domiciled in UK on the London stock exchange and the ETF holds stocks from the US and UK.
DIvidend WHT will be charged on any dividends paid by the US company to the UK ETF at a rate of 15% as per the US-UK tax treaty (assuming it doesn't qualify for the direct dividend rate). Dividends paid from the UK holdings to the UK ETF will not be taxed as far as I can tell. Then when the dividend from the ETF is paid out to the Cdn investor, according to the WHT table, there will be no dividend WHT charged by the UK. There will only be Cdn domestic tax on the foreign-source income to pay.

So it seems that when it comes to tax avoidance, investing in individual companies via exchanges in Hong Kong, Singapore and UK will achieve this, and investing (via the same exchanges) in ETFs that hold stocks of companies incorporated in these same jurisdictions (or any on the list of 0% WHT countries listed above) will allow the tax-free party to continue, at least from the withholding POV. One could cover a signficant part of the global market this way. To include the US however, the best most investors can do is 15% WHT via an Irish-domiciled ETF, which also has the huge added benefit of avoiding the issue of US estate taxes one would face if they were to invest directly thru a personal brokerage account and claim the treaty benefit.

From the top of my head, yes, only in UK, HK, SG, this is the case.

 

[WorldCitizen99]

I should correct something I said....
When it comes to ETFs on the UK stock exchange, they tend to be domiciled in Ireland (and Luxembourg) bc of their tax-free status. I'm not sure if there are many domiciled in UK.

Re: Australia and Estonia - 0% WHT only applies when the dividends have been paid out of funds that have been fully taxed at the corporate level already. I don't know how easy it is to figure that out. If it involves digging thru each prospectus when screening for ETFs, I doubt those jurisdictions will be a popular choice for my purposes.
For Hungary, it appears that one needs to invest via a company in order to get the 0% rate.

Here is a useful ETF screener for Singapore
https://www.sgx.com/securities/etf-screener
And for the London stock exchange
https://www.justetf.com/uk/find-etf.html
And for Hong Kong
https://www.hkex.com.hk/Market-Data/Securities-Prices/Exchange-Traded-Products?sc_lang=en
ETF holdings can be filtered to stocks from companies that are resident in just the above countries.

The bigger question is whether it is worth it to avoid WHT at all leyers so assiduously. As long as the yield is adequate for an investor, the WHT that an ETF pays in the course of its business is pretty much invisible to the end-user. It will shave off some of the earnings but the profitability of investing in the US or other region might be worth the trade-off.

Since yields are expressed without taking into account WHT tax deducted from the final payment to the end-user, one has to make that mental adjustment when deciding on an investment.
When choosing between ETFs in 2 different markets (say Singapore and the US) that hold stocks in their own domestic markets, If one thinks that safety, div yield, growth of the underlying asset are equal, one might as well invest in Singapore bc they will save 15% WHT. It also gives an investor the chance to get paid in SGD, HKD or GBP if they are more bullish on it than the dollar. However, a Singapore-domiciled ETF that only contains Singapore stocks might be advantageous tax-wise but lose out bc it doesn't sufficiently diversify geographically. It is a bet on the greater Singapore market. One might be safer betting on the US which is a much larger market.

So far this thread has been more of an exercise to document how dividend taxation for int'l investors works and to float some ideas out there to get some feedback from other members. But it was also to point out that all these markets are accessible from Interactive Brokers and so it would be fairly easy to accomplish the feat of eliminating WHT.

I haven't yet covered accruing vs distributing dividend ETFs. So maybe I'll get to that next.

 

[WorldCitizen99]

The above is a bit disorganized, since I was "learning on the job". So I will summarize it better here:

When you see a juicy yield for an int'l stock, how do you determine what the yield will be after tax? A 5% yield subject to 30% WHT is only a 3.5% yield. And then there are domestic taxes to contend with. Consider the following:

1. What is your tax residency? Does it require you to pay taxes on your foreign-sourced investment income - esp dividends in this case. If from a tax haven or territorial country, the answer is no. If you have remittance-based taxation and do not remit the dividend income, you also will not pay domestic tax. Finally some countries have special bilateral arrangements where there is no WHT, and some countries simply do not tax foreign dividends despite them having a residency-based tax system e.g. Cyprus. On eimportant point is that, especially with tax treaty countries, you will often get a tax credit on your domestic taxes for foreign WHT paid. So if you had 15% withheld and you are supposed to pay 20% domestically on what's left, you will often only pay 5% bc of a 15% credit on the WHT paid.

2. If the investment is in a single stock, it is only a question of which country the stock exchange is located in. There are around 40 countries with 0% WHT on dividends, subject to certain conditions. The main ones accessible from IBKR are UK, Singapore and Hong Kong. Other ones include Australia and Estonia but one only gets the rate if the company paying the dividend pays it from funds that have already been fully taxed and that may or may not be inconvenient to figure out. Finally, Hungary withholds 0% when investing thru a company but not if one invests via an individual brokerage account. Canada has a bilateral arrangements with the US for registered accounts. India apparently has a 0% WHT rate from a bilateral arrangement with the US but this is not apparent from the IRS tax treaty table.

(see column 6)
https://www.irs.gov/pub/irs-utl/Tax_Treaty_Table_1_2019_Feb.pdf
(To answer the question of why a US company listed on a non-US stock exchange would not be subject to US WHT, I believe the answer is that the listed company would be considered a subsidiary of the US parent company and so it would be considered a national of the foreign country and therefore required to apply that country's WHT rates).

3. If the investment is in an ETF, it is more complicated bc one has to consider the jurisdiction(s) of the stock holdings of the ETF relative to the domicile of the ETF itself. This will be invisible to the investor bc the WHT will have already been paid by the ETF before the ETF pays out the dividend to the investor but it will still eat into the overall yield.

Some countries have 0% WHT on dividends, and for the rest one will have to look up tax treaty tables to get the rate. If there is no tax treaty, the ETF will receive the default rate of the country from which the payment is coming (see table below). One will often see 2 numbers e.g."15, 5" in a tax treaty table (column 6 and 7 in the IRS table). The lower number applies if it is a foreign company receiving the dividend and it owns a significant portion (usu >5-10%) of the company paying the dividend. The higher number applies in all other cases. If an ETF is massive enough that it does own a significant portion of the stock in a company then it should receive the lower rate.

https://topforeignstocks.com/2022/01/19/dividend-withholding-tax-rates-by-country-for-2022/
Taking the example of an Irish-domiciled ETF holding US stocks, that is listed on the London stock exchange, you will have the following: The US company(s) paying the dividend will withhold 15% of the payment, resulting in the Irish ETF only receiving 85% of the payment. Since the ETF is domiciled in Ireland, foreign dividend income is only taxed if remitted to Ireland, which it wouldn't be given that the fund would be as a non-dom UK tax resident. The UK has a 0% WHT rate and so payments made from the UK to the non-resident investor will also be tax-free. If you would have invested directly in a US ETF holding US stocks, you would either get the 30% default rate (if your country has no tax treaty with the US) or the treaty rate which is usually 10-15% but could be 25 or 30%, even with a tax treaty. A further factor re: the US is that part of the dividend might be from a non-taxable form of income (for non-residents) like short-term cap gains or portfolio interest and so an invetor may not be taxed on the whole dividend. More globally, some ETFs make payments regularly and some accrue them, presumable to avoid creating a taxable event, and so the rules around that need to be considered as well.

Using IBKR as the platform, one can invest in the UK, Singapore and HK, which have 0% WHT on dividends. For individual stocks you will not suffer additional taxes. For ETFs, if the constituent stocks are from companies located in 0% WHT tax countries you will remain tax-free. But given that the US is such a dominant market, most investors will want to capture that market and so your best bet is to invest in Irish-domiciled ETFs on the London stock exchange. For foreign investors, this is a better way to invest in the US market. US stocks or US-domiciled ETFs are considered US-situs assets so if you hold them in your brokerage account and you die, the IRS will steal 40% in the form of estate taxes (if your account's value is >$60K USD).

The final point is that in the search for a WHT-free arrangement one might be sacrificing geographical diversification and so it is up to each investor to decide whether the trade-off is worth it.

 

[JimBeam]

Great topic and thanks for updating us with your research.

From my personal experience with UAE: for US stocks you pay the 30% WHT (auto deducted) but there are no taxes after that (no capital gains, no personal income etc) and nothing to file/report.

I think that most stocks from other countries have 15% WHT like Canada, Israel, Luxembourg, Netherlands. I think that only Ireland is 10% or it's also 15% - not sure right now.

In many other countries you would have to file/report the taxman the trades and pay capital gains tax and to do silly things like selling the stocks at the end of the year, than buying them next year to realise gains/loses etc. So from that perspective, UAE is pricy (30 WHT) but simple to do.

Also note:
1. I have never bought stocks as an UAE company (only in my private name).
2. Also take in consideration "estate tax" (or "death tax", more about it in here Estate Tax Definition, Tax Rates & Who Pays - NerdWallet ) so in case you die your family (who will inherit your stocks) will be taxed from 18% up to 40% of your entire portfolio!!! This simply can not happen to a company so that's one and only reason of buying stocks as a company. Also UAE FZ company is great as you pay no CIT so you can re-invest everything back in. But having a company registered just to invest in stocks is very difficult but if you have some active business that makes money you could invests it's profits into stocks from that company rather than distributing it as dividends to yourself is probably way to go. (but I never did that)

 

[WorldCitizen99]

Great topic and thanks for updating us with your research.
Thanks Jim

 

[USDT]

thanks for such detailed information.
Is WHT applied when buying US treasury notes/bonds using IBKR?

 

[WorldCitizen99]

Thanks for such detailed information.
Is WHT applied when buying US treasury notes/bonds using IBKR?

I was trying to answer this question last week and after literally 3 hours surfing around various websites including the impenetrable IRS website, I still did not have a definitive answer. Even a US CPA I spoke with said the interest income from US treasuries in general should be considered exempt portfolio interest for non-residents. He wouldn't even say definitively that it was, which I think is ridiculous.

Fortunately, today, when I looked again today after you asked, I found this rather straightforward claim on the treasurydirect website:

FOREIGN WITHHOLDING
Securities issued on or after July 19, 1984, are not subject to withholding if you’ve filed a properly executed IRS Form W-8BEN or W-8ECI with us. (Generally, these forms are valid for three years.) Securities issued before July 19, 1984, are subject to withholding of 30 percent or the applicable treaty rate.

Securities is earlier defined as "bills, notes, bonds, and TIPS"

https://www.treasurydirect.gov/forms/sec0011.pdf
The IRS website also says that treasuries sold between coupon payments are exempt from withholding tax. Interestingly, selling it before maturity is considered a capital gain or loss, which is still exempt from WHT but might have significance for whatever tax jurisdiction you pay taxes in, whereas holding it to maturity and receiving the face value is considered interest, at least by the US.

IBKR says:
IBKR does not withhold taxes on proceeds from security sales. We are required by US tax law, for example, to withhold US taxes on dividends paid by US corporations to foreign persons at a rate of 30%. This rate may be lower if the US has entered into a tax treaty with your country. In addition, investment interest income is not subject to US withholding. All withholdings for non-US persons and most entities will be reported on Form 1042-S at the close of each year.

https://ibkr.info/node/46
So it seems that there is NO WHT for coupon payments, repayment of the face value at maturity, or proceeds of the sale of a bond between coupon payments - whether the treasury was bought from treasurydirect or from a broker.

 

[USDT]

thank you very much. Your response is much more informative than one from the IBKR support.

 

[Radko]

Thank you so much for taking the time to publish all this information, I really appreciate it!
I'm one of those investors who lives primarily from dividends, I invest in fixed income products that have been consistently returning an average of 10%-11% annually and I only invest in the US, at the moment my US Broker is withholding 10% of the dividends that I make based on the Double tax treaty the US has with my country of residency, trying to minimize that withholding rate is imperative for me.

Please correct me if I'm wrong, based on the information that you have provided, if I want to lower that withholding rate to 0% I would need to forget about investing in the US, and only invest in the UK, Hong Kong, or Singapore, and only in companies that are based in each of those countries, so if I invest in the Singapore exchange I need to buy Singapore companies, that's the only way to accomplish 0% withholding rate?
Then you have also mentioned that India has a double tax treaty with the US where you can get the US to not withhold any amount, is this the case or am I mistaken? I haven't checked the requirements to become an Indian resident but I wouldn't mine relocating my residency to India IF that would mean that my US broker would not withhold any amount on the dividends that I get.

As I said earlier I live primarily from dividends that I receive by investing in US ETFs that use leverage, such as Covered call ETFs and Split Share funds, I've been investigating this way for many years, generally I drip about 75% of the dividends I receive, so I compound as much as I can.

Other than investing in HK, UK, or Singapore, which I wouldn't do as I prefer to invest in the US for various reasons, is there any way to lower that 10% that my US Broker is currently withholding to either 5% or 0%, is becoming a resident in India one way to accomplish that? Are there any other ways to get to either 5% or 0% withholding from the IRS?

Thanks in advance!

 

[WorldCitizen99]

Hi Radko
I am happy you liked the post!
Going by the US tax treaty table,

https://www.irs.gov/pub/irs-utl/Tax_Treaty_Table_1_2019_Feb.pdf
column 6 is the one that would apply to retail investors like ourselves. The lowest rate listed is 10% for a handful of countries - including yours. The only situation that I'm aware of where you can get a lower rate is if you invest as a Canadian tax resident from a Canadian registered account like an RRSP. However, this 0% rate is not apparent from the table. In other words, there may be specific arrangements between the US and other countries that are hidden and not apparent without doing a little digging using search engines.

If any members of the forum know of any specifics, please reply.

I regret putting in the info about India bc I cannot find it anymore and there is nothing else to confirm it. As per the tax treaty, the WHT is 25% for an Indian tax resident. So I will keep trying to find that bc I am interested in seeing what that was all about myself.
According to the India tax summary, someone who was resident and ordinarily resident in India would pay taxes on their worldwide income, including dividend income, so the overall tax rate might be higher anyway. Only someone resident but not ordinarily resident would be exempt from most foreign income.

>Please correct me if I'm wrong, based on the information that you have provided, if I want to lower that withholding rate to 0% I would need to forget about investing in the US, and only invest in the UK, Hong Kong, or Singapore, and only in companies that are based in each of those countries, so if I invest in the Singapore exchange I need to buy Singapore companies, that's the only way to accomplish 0% withholding rate?

There are only 2 other ways I know of to avoid US WHT:

A. According to the tax table notes (a), the following situation is exempt from US WHT:
No U.S. tax is imposed on a percentage of any dividend paid by a U.S. corporation in existence on January 1, 2011, that received at least 80% of its gross income from an active foreign business for the 3 year period before the dividend is declared. (See sections 871(i)(2)(B) and 881(d) of the Internal Revenue Code.)

So if you can find a US-listed company that meets that criteria, it should be exempt.

B. The other situation where there would be no WHT tax: if the stock or fund takes its capital gains and/or interest income and pays it out as a dividend to the investor. The portion of the dividend accounted for by those forms of income are exempt.

Unless you can take advantage of A or B, I don't see you improving that 10% rate.



As for other countries, there are 40 with 0% WHT - see below. Singapore, UK and HK are just the ones accessible from Interactive Brokers but if you can find another broker that can invest in, e.g. Malaysia, it should be tax-free from the WHT point of view.

I think any combination of stock exchanges located in those 40, that list stocks or ETFs with holdings in those 40 would be exempt. That covers a large part of the world but misses the elusive US market.

https://topforeignstocks.com/2022/01/19/dividend-withholding-tax-rates-by-country-for-2022/
As I said, my next research item was to see whether investing in accumulating funds that don't immediately pay out dividends can provide benefits in the form of deferred taxes where there is more capital leftover to gain from compounding with DRIP. If you research that and find out, please post here.

 

[Radko]

Hi Radko
I am happy you liked the post!
Going by the US tax treaty table,

https://www.irs.gov/pub/irs-utl/Tax_Treaty_Table_1_2019_Feb.pdf
column 6 is the one that would apply to retail investors like ourselves. The lowest rate listed is 10% for a handful of countries - including yours. The only situation that I'm aware of where you can get a lower rate is if you invest as a Canadian tax resident from a Canadian registered account like an RRSP. However, this 0% rate is not apparent from the table. In other words, there may be specific arrangements between the US and other countries that are hidden and not apparent without doing a little digging using search engines.

If any members of the forum know of any specifics, please reply.

I regret putting in the info about India bc I cannot find it anymore and there is nothing else to confirm it. As per the tax treaty, the WHT is 25% for an Indian tax resident. So I will keep trying to find that bc I am interested in seeing what that was all about myself.
According to the India tax summary, someone who was resident and ordinarily resident in India would pay taxes on their worldwide income, including dividend income, so the overall tax rate might be higher anyway. Only someone resident but not ordinarily resident would be exempt from most foreign income.

>Please correct me if I'm wrong, based on the information that you have provided, if I want to lower that withholding rate to 0% I would need to forget about investing in the US, and only invest in the UK, Hong Kong, or Singapore, and only in companies that are based in each of those countries, so if I invest in the Singapore exchange I need to buy Singapore companies, that's the only way to accomplish 0% withholding rate?

There are only 2 other ways I know of to avoid US WHT:

A. According to the tax table notes (a), the following situation is exempt from US WHT:
No U.S. tax is imposed on a percentage of any dividend paid by a U.S. corporation in existence on January 1, 2011, that received at least 80% of its gross income from an active foreign business for the 3 year period before the dividend is declared. (See sections 871(i)(2)(B) and 881(d) of the Internal Revenue Code.)

So if you can find a US-listed company that meets that criteria, it should be exempt.

B. The other situation where there would be no WHT tax: if the stock or fund takes its capital gains and/or interest income and pays those forms of income are exempt.

Unless you can take advantage of A or B, I don't see you improving that 10% rate.



As for other countries, there are 40 with 0% WHT - see below. Singapore, UK and HK are just the ones accessible from Interactive Brokers but if you can find another broker that can invest in, e.g. Malaysia, it should be tax-free from the WHT point of view.

I think any combination of stock exchanges located in those 40, that list stocks or ETFs with holdings in those 40 would be exempt. That covers a large part of the world but misses the elusive US market.

https://topforeignstocks.com/2022/01/19/dividend-withholding-tax-rates-by-country-for-2022/
As I said, my next research item was to see whether investing in accumulating funds that don't immediately pay out dividends can provide benefits in the form of deferred taxes where there is more capital leftover to gain from compounding with DRIP. If you research that and find out, please post here.

Honestly I can't thank you enough for taking the time to do all that research and then posting all that information here, I did a lot of research on the subject and I never found out so much information, I did get to find out about those few countries that have a 10% withholding from the IRS, so I moved there (Mexico) and became an Expat living off of the dividends, plus some trading that I do on the side just to make a bit of extra money and reinvest most of the dividends that I get.

I'm going to do some research on those other countries that have 0% withholding on dividends but it's not going to be easy trying to beat the US market, maybe I'm wrong but getting consistently 10%~11% return on your fixed income investments while keeping the risk as low as possible is not easy to accomplish in some of those foreign countries with 0% withholding rate, obviously they are trying to give an incentive for people to come and invest in those jurisdictions, I guess the US can care less, they already have enough investors as it is.
Trying to keep track of individual companies is some jurisdictions could be very challenging, so I will try to find ETFs that invest in sectors such as the banking sector of that specific county, probably sticking to the UK, HK, and Singapore would be the ideal thing to do just to be safe, those three countries have pretty good regulations that may not exist in other jurisdictions that also have 0% withholding rate on dividends, so I will start with ETFs based in the UK, HK, and Singapore, I don't have an account with IBRK but I can always open one, I'm with Charles Schwab.

The US and Canada have an insane amount of ETFs that are tailored to fixed income investors that are trying to maximize the amount of money they make now, as opposed to in the long-term, even though as you very well pointed out investing long-term looking for capital gains will be more profitable than fixed income, although we can all agree that this past decade where we've had interest rates so low, plus all the money printing, has fueled the stock market to unprecedented levels, so maybe the next decade won't be nearly as profitable for those investors that are fully invested in growth stocks, time will tell, for now I prefer a dollar in my pocket than the promise of 5 dollars in the future.

So we have option A and option B,

I think option A is restrictive, you are restricted to those specific US corporations that were in existence before January 1, 2011 and on top of that they have to meet the criteria described.

Option B, could you please clarify what you wrote, I'm not sure I'm following "if the stock or fund takes its capital gains and/or interest income and pays it out as a dividend to the investor."

By the way I did read about accumulating funds that don't immediately pay out dividends, I'll do more research as well, thanks for reminding me of that.

And as far as Canadians investing via a registered account I can tell you that I have a couple of friends from Canada that are doing that and yes there is no withholding from the IRS, but if I'm not mistaken they are limited to an amount of investments they can keep on that registered account, obviously they try to maximize that every year as much as they are allowed, but I don't think they can have whatever amount of money they want invested via that registered account.
I don't know if someone that is not Canadian could open an account with a Canadian Broker and try to open a registered account, probably not, that would be a nice loophole! However the two Canadian guys that I know are now living in Panama and are allowed to have those registered accounts even if they are not residing in Canada, and as far as I know they don't have an address in Canada anymore, both of them sold their homes before they moved to Panama, which makes me wonder....

 

[WorldCitizen99]

That's the thing with US and Can - the selection of ETFs is unbelievable. You won't get that on the Singapore SGX for sure. If you switch some of your stock ETFs to bond ETFs, those should be free of WHT but then you might not get the same return so it's a trade-off.


>so I moved there (Mexico) and became an Expat living off of the dividends

Good choice - I assume the Mexican SAT doesn't bother you for taxation on worldwide income


>Option B, could you please clarify what you wrote, I'm not sure I'm following "if the stock or fund takes its capital gains and/or interest income and pays it out as a dividend to the investor."

I guess companies generate income from their own investments as well as their business activities and they choose to pass some of their cap gains and interest income on to investors in the form of a dividend.

It's from this page: ​

https://www.bogleheads.org/wiki/Nonresident_alien_taxation

​

Short-term capital gain distributions paid as dividends​

A US domiciled ETF that pays a short-term capital gains distribution will generally include this in its dividend. For US investors this makes no difference to their tax or other positions.

However, capital gains are not US taxable to nonresidents. In this case, an ETF should exempt the portion of a dividend that is due to short-term capital gains from nonresident alien withholding. For this to occur correctly, the broker needs to be aware that the withholding rate on this payment to nonresidents is less than the standard or treaty rate.

Interest distributions paid as dividends​

Where a US domiciled ETF receives US source interest on its holdings, and that interest would not have been taxable to a US nonresident if paid directly, the portion of the dividend attributable to this interest is 'portfolio interest'[11] and can be exempted from nonresident withholding.[12] This situation is unlikely in ETFs that hold only stocks, but will be common in bond ETFs, and any mixed-asset ETFs.

Again, for this to occur correctly both the ETF provider and the broker need to be aware of the relevant qualified interest income (QII) regulations.

This exemption is particularly narrow. It does not apply to any non-US source interest or dividends that the ETF receives.[10] This means that a US domiciled ETF containing non-US bonds or non-US stocks suffers the standard 30% or lower treaty rate US tax on dividends. If the investor had instead held the ETF's assets either directly or through a non-US domiciled ETF, they would have paid no US tax.

>And as far as Canadians investing via a registered account I can tell you that I have a couple of friends from Canada that are doing that and yes there is no withholding from the IRS, but if I'm not mistaken they are limited to an amount of investments they can keep on that registered account, obviously they try to maximize that every year as much as they are allowed, but I don't think they can have whatever amount of money they want invested via that registered account.

Yes it is a maximum of 18% of your employment income up to a max of about 30K CAD for 2023


>I don't know if someone that is not Canadian could open an account with a Canadian Broker and try to open a registered account,

You have to be a Canadian resident to do it

Caveat: Make sure you confirm everything I said with an accountant first before pulling the trigger.

 

[joffreylol]

Great topic and thanks for updating us with your research.

From my personal experience with UAE: for US stocks you pay the 30% WHT (auto deducted) but there are no taxes after that (no capital gains, no personal income etc) and nothing to file/report.

I think that most stocks from other countries have 15% WHT like Canada, Israel, Luxembourg, Netherlands. I think that only Ireland is 10% or it's also 15% - not sure right now.

In many other countries you would have to file/report the taxman the trades and pay capital gains tax and to do silly things like selling the stocks at the end of the year, than buying them next year to realise gains/loses etc. So from that perspective, UAE is pricy (30 WHT) but simple to do.

Also note:
1. I have never bought stocks as an UAE company (only in my private name).
2. Also take in consideration "estate tax" (or "death tax", more about it in here Estate Tax Definition, Tax Rates & Who Pays - NerdWallet ) so in case you die your family (who will inherit your stocks) will be taxed from 18% up to 40% of your entire portfolio!!! This simply can not happen to a company so that's one and only reason of buying stocks as a company. Also UAE FZ company is great as you pay no CIT so you can re-invest everything back in. But having a company registered just to invest in stocks is very difficult but if you have some active business that makes money you could invests it's profits into stocks from that company rather than distributing it as dividends to yourself is probably way to go. (but I never did that)

OP great topic, thanks for all the effort.

Hey Jim, I'm also resident in the UAE and I'm maybe from the same country in Balkans. I don't know if you are aware of this option, I've been using it and it seems that I get 0% withholding tax from dividends when I buy synthetic swap based ETF. It tracks S&P 500 index and it's domiciled in the EU (which kinda makes this swap based etf more regulated), check out Invesco S&P500 UCITS (SPXD or D500 ticker). Cheers!

 

[WorldCitizen99]

Oh boy...this is why I wanted to run my research by the more experienced members bc now I'm a bit confused.
If you go to any tax treaty under the dividends section (usually article 10 or thereabouts) it will state the maximum tax on dividends that someone who is resident of one of the 2 countries involved in the tax treaty will pay.

According to this page:
https://wtax.co/blog/everything-you-need-to-know-about-double-tax-treaty-withholding-tax-wht/
For example, when a foreign (e.g. Swiss) company pays a dividend to a domestic (e.g. US) resident, the Swiss tax authorities may withhold 35% of the dividend while the domestic US-resident investor receives the net income of 65%.

However, where a double taxation agreement exists between the domicile country of the company paying the dividend and the domicile country of the non-resident, it may unlock a refund opportunity. The double tax treaty between the two countries may prescribe a maximum tax rate of 15%, due to the foreign tax authority. Therefore, the domestic investor should be entitled to a refund of the excess tax (20%) which was withheld initially.

From the above example, you will get some of the WHT refunded, but are you then required to pay domestic tax on foreign-source income or you just pay 15% total and that is it - because that would be a HUGE saving - 20% less on the WHT side and then potentially 15-30% on the domestic tax side......I think from the language of the tax treaty it is just referring to avoidance of double taxation on the withholding tax, and that the country of tax residency can still apply tax at domestic rates so it is not avoidance of double taxation of domestic tax

OP great topic, thanks for all the effort.

Hey Jim, I'm also resident in the UAE and I'm maybe from the same country in Balkans. I don't know if you are aware of this option, I've been using it and it seems that I get 0% withholding tax from dividends when I buy synthetic swap based ETF. It tracks S&P 500 index and it's domiciled in the EU (which kinda makes this swap based etf more regulated), check out Invesco S&P500 UCITS (SPXD or D500 ticker). Cheers!

This is gold - thanks for posting! I will def check this out.

 

[Radko]

That's the thing with US and Can - the selection of ETFs is unbelievable. You won't get that on the Singapore SGX for sure. If you switch some of your stock ETFs to bond ETFs, those should be free of WHT but then you might not get the same return so it's a trade-off.


>so I moved there (Mexico) and became an Expat living off of the dividends

Good choice - I assume the Mexican SAT doesn't bother you for taxation on worldwide income


>Option B, could you please clarify what you wrote, I'm not sure I'm following "if the stock or fund takes its capital gains and/or interest income and pays it out as a dividend to the investor."

I guess companies generate income from their own investments as well as their business activities and they choose to pass some of their cap gains and interest income on to investors in the form of a dividend.

It's from this page: ​

https://www.bogleheads.org/wiki/Nonresident_alien_taxation

​

Short-term capital gain distributions paid as dividends​

A US domiciled ETF that pays a short-term capital gains distribution will generally include this in its dividend. For US investors this makes no difference to their tax or other positions.

However, capital gains are not US taxable to nonresidents. In this case, an ETF should exempt the portion of a dividend that is due to short-term capital gains from nonresident alien withholding. For this to occur correctly, the broker needs to be aware that the withholding rate on this payment to nonresidents is less than the standard or treaty rate.

Interest distributions paid as dividends​

Where a US domiciled ETF receives US source interest on its holdings, and that interest would not have been taxable to a US nonresident if paid directly, the portion of the dividend attributable to this interest is 'portfolio interest'[11] and can be exempted from nonresident withholding.[12] This situation is unlikely in ETFs that hold only stocks, but will be common in bond ETFs, and any mixed-asset ETFs.

Again, for this to occur correctly both the ETF provider and the broker need to be aware of the relevant qualified interest income (QII) regulations.

This exemption is particularly narrow. It does not apply to any non-US source interest or dividends that the ETF receives.[10] This means that a US domiciled ETF containing non-US bonds or non-US stocks suffers the standard 30% or lower treaty rate US tax on dividends. If the investor had instead held the ETF's assets either directly or through a non-US domiciled ETF, they would have paid no US tax.

>And as far as Canadians investing via a registered account I can tell you that I have a couple of friends from Canada that are doing that and yes there is no withholding from the IRS, but if I'm not mistaken they are limited to an amount of investments they can keep on that registered account, obviously they try to maximize that every year as much as they are allowed, but I don't think they can have whatever amount of money they want invested via that registered account.

Yes it is a maximum of 18% of your employment income up to a max of about 30K CAD for 2023


>I don't know if someone that is not Canadian could open an account with a Canadian Broker and try to open a registered account,

You have to be a Canadian resident to do it

Caveat: Make sure you confirm everything I said with an accountant first before pulling the trigger.

Thanks again! I need to digest all this information, even if it looks like for now I'm stuck with the 10% withholding rate.

Yes the Mexican tax authorities are not bothering anybody, I don't know a single Expat that is paying taxes on foreign earned income or capital gains, I know a few guys that have been living in Mexico for over a decade and they've never paid taxes here, if that were to change a lot of Expats would end up leaving, I would happily move to Thailand even if then I would be subject to 15% withholding rate, but Thailand is even less expensive than Mexico so maybe at the end of the year I'll end up the same as before, plenty of Expats and digital nomads living in Thailand and not having to pay taxes, legally! Although that Elite visa is a bit expensive.

I'm going to spend this week digesting all the information in this thread, this is a gold nugget, I would prefer to give my money to charity than any tax authority in the world, at least I'd know where my money is going.

 

[WorldCitizen99]

OP great topic, thanks for all the effort.

Hey Jim, I'm also resident in the UAE and I'm maybe from the same country in Balkans. I don't know if you are aware of this option, I've been using it and it seems that I get 0% withholding tax from dividends when I buy synthetic swap based ETF. It tracks S&P 500 index and it's domiciled in the EU (which kinda makes this swap based etf more regulated), check out Invesco S&P500 UCITS (SPXD or D500 ticker). Cheers!

I just looked this up. It is domiciled in Ireland and listed on a number of European exchanges.
It pays a quarterly dividend and tries to match the total return of the S&P500 (exclusively US companies)- so I imagine its distributions would be a mix of short term capital gains (exempt from WHT) and dividends (15%WHT from Irish-US tax treaty)
The 15% WHT will be invisible to you bc the fund will have already paid it before the dividend is paid out to you. I think the WHT on the dividend payout that you would be subjected to would depend on which stock exchange you bought it on. If Swiss, there would be 35% WHT bc the fund would be located in Switzerland. If UK, then 0% but I'm not 100% sure. I wonder if any members can confirm this....

 

[Radko]

OP great topic, thanks for all the effort.

Hey Jim, I'm also resident in the UAE and I'm maybe from the same country in Balkans. I don't know if you are aware of this option, I've been using it and it seems that I get 0% withholding tax from dividends when I buy synthetic swap based ETF. It tracks S&P 500 index and it's domiciled in the EU (which kinda makes this swap based etf more regulated), check out Invesco S&P500 UCITS (SPXD or D500 ticker). Cheers!

Somehow the IRS always gets you, if you think you are getting 0% withholding that's because the IRS already took a cut, they have it all under control.