In plain English
When a company pays a dividend to a foreign investor, the company’s country can deduct tax before the money reaches you. This is withholding tax.
Example
A US company pays you a $100 dividend. Under the default rules for non-US investors, $30 could be withheld. Tax treaties between countries often reduce the rate, commonly to 15%, and you usually need to give your broker a form such as W-8BEN.
Why it matters
Withholding tax lowers the dividend you actually receive. Depending on your country, you may be able to claim a credit when you file your own taxes.
Important
Rates and rules change and depend on your residency. This is general information, not tax advice. Check current rules with your broker or a qualified professional.
Common mistakes
- Forgetting to submit the treaty form, so the higher default rate is applied.
- Ignoring withholding when estimating income from foreign stocks.