The US has tax treaties with approximately 70 countries. This lesson will discuss tax withholding rates and tax credits in your home country.
The US has tax treaties with approximately 70 countries.
They are listed on IRS.gov and can be accessed for free. Do not assume that your country is not
included, as some countries with treaties may surprise you given overall US relations with those
Tax Withholding Rate
• Most, but not all, tax treaties lower withholding on investment income (primarily dividend
income) from 30%, which is what is required by the US income tax code (statutory withholding).
• The most common treaty rate is 15% or a 50% reduction from the statutory amount.
• Some treaties lower the rate further to 10%, while others only reduce it slightly to 25%.
• Many countries allow for a credit to be taken against tax due in your home country. This is
country specific, so it is best to consult a local tax advisor on this issue.
W-8BEN – Keep it Current
• Do not forget that your W-8 on file with the account holder must be current.
• Remember that they expire every three years and must be updated if you move.
• If your W-8 lapses, then withholding at 28% on income kicks in. Theoretically, this might be
better if you live in a country without a tax treaty as 28% withholding is better than the 30%
withholding you are subject to;
• But 28% withholding includes withholding on gross proceeds from securities sales, whereas
having a valid W-8 exempts proceeds from withholding.
• The Foreign Account Tax Compliance Act – commonly referred to as FATCA – imposes reporting
requirements on US entities to foreign government. Aimed at getting US persons to report and
pay US taxes on accounts and other income held outside the US, the law has had sweeping
impact which has resulted in worldwide information sharing between governments.
• Because of this information sharing it is essential to keep your W-8BEN up to date with all
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Disclosure: Tax-Related Circular 230 Notice
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