Some foreign dividend income being withheld at 30% v.s. 15%
Why are some foreign dividends subject to withholding tax at 30% v.s. 15%?
Many types of U.S.-source income, including dividends, paid by a U.S. person to a foreign person are subject to a withholding tax of 30%. However, payers of U.S.-source dividends are allowed to reduce their withholdings to 15% (i.e. the treaty rate). To do so, they must first obtain a completed and executed form W-8 Ben form (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding) certifying that the recipient is a resident of a treaty country and therefore entitled to a reduced withholding rate.
Each Country sets their own withholding rate and each treaty provides for different withholding rates on various sources of income. The income subject to withholding at source is usually also taxable in the country where the recipient is resident.
Disclaimer: Articles are for general information only and do not constitute tax advice. They cannot be relied upon.
Sam Faris is a Toronto-based Chartered Professional Accountant who practices as an independent consultant on high-level Canadian tax matters and handling disputes with CRA.He also published an article recently in the business magazine: HERE.