Dividends from abroad: withholding tax and the W-8BEN form explained

You own a US share that pays a $1 dividend, but only about 85 cents arrives in your account. The missing part is withholding tax: tax taken by the company’s home country before the money ever reaches you.

How withholding tax works

1. A company pays a dividend.
2. Its home country withholds tax at source for foreign shareholders.
3. Your broker credits you the rest.
4. Your own country may then tax the dividend too — usually giving you a credit for some or all of the tax already paid abroad.

Each country sets its own default rate, and tax treaties between countries often reduce it.

The US case and the W-8BEN

For non-US investors, the US withholds 30% on dividends by default. If your country has a tax treaty with the US, the rate is often reduced — commonly to 15%.

To get the treaty rate, you sign a W-8BEN form (for individuals), which tells the US you’re a foreign resident of a treaty country. Almost every broker offering US shares asks for it during sign-up or in the account settings. It’s usually valid for about three years, after which the broker asks you to renew it.

Without a W-8BEN, you can lose double the tax on every US dividend. Check yours is active.

Dividends inside ETFs

If you hold a fund instead of individual shares, withholding happens inside the fund:

• A US-domiciled ETF holding US shares pays dividends to you, and the US withholds on that payout.
• An Irish-domiciled UCITS ETF holding US shares has US tax withheld at the fund level, typically at the treaty rate between Ireland and the US. Ireland does not withhold tax on distributions to non-Irish investors.

That’s one reason Irish-domiciled UCITS ETFs are popular with investors outside the US. More on UCITS ETFs.

Your own country’s tax

Foreign dividends are usually taxable where you live as well. Most countries allow you to deduct the foreign tax already withheld, up to the amount of your local tax. You typically report them in your annual tax return using the broker’s year-end statement. Your country page covers the basics.

The short version

Sign the W-8BEN if you hold US shares, keep your broker’s annual dividend statement, and remember that the advertised dividend yield isn’t what you’ll actually keep.