Every year, governments apply an estimated $3.7 billion in withholding tax to overseas dividend payments and securities. It is standard practice for the country of issue to apply a withholding tax to the portfolio income of non-resident investors.
Most investors are unaware that foreign withholding tax can be reclaimed in full, or at least in part. If you’ve never filed a reclaim, the amount at stake could be substantial. Taxback can apply for this refund on your behalf.
Countries regularly enter into bilateral agreements called income tax treaties.
Withholding tax reclaims arise because the rate permitted under the terms of the treaty is less than the default rate applied by most foreign governments. In most cases the only way to obtain your legal entitlement is to file a reclaim.
DWT refunds can be substantial and it is always a good idea to check what you are entitled to.
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The rules applicable to non-resident investors vary country-to-country. Some countries do not impose any withholding tax on dividends.
The answer to this question depends largely on the country in which your investment is located.
For example, Australia imposes a 30% DWT rate, while Canada, France and Ireland charge 25%.
Taxback will ensure you never pay more DWT than you need to.
The amount of tax that can be reclaimed depends on several factors, including: 1) where the non-resident investor resides for tax purposes; 2) the tax status of the non-resident investor such as an individual, a company, a pension fund, a partnership, etc.; and 3) the percentage of shares of the dividend-paying company that are held by the non-resident investor.
The length of time is entirely dependent on the tax offices involved as each country has a different timeline. Taxback’s withholding tax recovery specialists will advise of the tax reclaim repayment timeline relevant to the investment country in question.
Taxback specialises in tax recovery. Our multi-lingual tax specialists have the technical knowledge and practical know-how to navigate the complicated and confusing processes required to avail of withholding tax relief across the globe.
Our sophisticated software provides assurance that every tax reclaim request will be handled efficiently, securely and in the most cost-effective manner.
Taxback will collect required documentation from the necessary parties, prepare and print the tax reclaim forms, sign the tax reclaim forms (if Power of Attorney has been provided), file the tax reclaim forms with the relevant tax office, receive the tax reclaim payment from the foreign government and remit the net tax reclaim to the non-resident investor.
Taxback will communicate the relevant fees before commencing your application.
Countries that impose withholding tax on dividends paid to non-residents do so because it would be extremely difficult – if not impossible – to collect the tax from a non-resident once the dividend has been paid. To ensure collection of such tax, it is deducted from the dividend payment before it is credited to the non-resident investor.
Let’s assume a non-resident investor holds 200 shares of a Swiss company, which pays a gross (i.e., before withholding tax) dividend of CHF 1,000. Before the “gross dividend” is credited to the non-resident investor, 35% withholding tax will be deducted from the dividend. This means that only CHF 650 will be credited to the non-resident investor. This after-tax amount is known as the “net dividend”.
Countries regularly enter into bilateral agreements called income tax treaties. The aim of a tax treaty is avoid the full taxation of certain specified income in both countries, i.e., the country where the income was earned (and taxed) and the country where the investor resides for tax purposes. A treaty assigns taxation rights between the two countries, in other words. As a rule of thumb, a common tax rate found in treaties, with respect to dividend income, is 15%. However, this is only a general rule. Many treaties provide for an exemption from withholding tax on dividends paid to pension funds that are exempt from tax domestically and that meet certain conditions, for example.
A beneficial owner is the person (e.g., an individual or a company) who would include the dividends in question on their income tax return. In other words, the beneficial owner would claim the dividends received as their income, and pay taxes on such income in their country of tax residence, generally. When governments process tax reclaims, they want to ensure that they are dealing with the “beneficial owner” of the dividends, and not another party who was simply collecting the dividends for the benefit of someone else, etc.
Each country has a defined “statute of limitations” that provides the deadline within which a non-resident tax reclaim must be filed. Generally, statutes of limitations are between two years and six years from the calendar year in which the dividends were paid, and – as expected – vary from country-to-country. Thus, if a non-resident investor has been receiving dividends from companies organised in one or more foreign countries for a few years, the potential amount to be reclaimed could be substantial.