What is foreign dividends withholding tax?
- most governments in the world impose a dividend tax
- when you invest in a company listed in a foreign country such as US, UK or Switzerland and the company pays a dividend, the relevant government is interested in collecting dividend tax
- this dividend tax is withheld and “collected-at-source” and you get paid the net dividend
Example Switzerland:
- you have transferred your hard earned South African money offshore to a stock trading platform in Europe
- you buy a number of Nestle NESN:SWX shares on the Swiss stock exchange
- Thanks to all the chocolate addicts, Nestle announces a good dividend payment to all its shareholders, including you
- However, Switzerland imposes a 35% dividend tax.
- Luckily South Africa has got a tax treaty with Switzerland. A 15% tax is paid directly by the trading platform to the Swiss tax office
- You get paid the dividend after the 15% tax
Example US:
- you have transferred your money to your Easy Equities USD account
- you buy shares in Apple AAPL on the NASDAQ stock exchange via Easy Equities
- a few months later, Apple announces a dividend
- the US and SA have a tax treaty. Dividends are subject to 15% foreign dividends tax.
- EasyEquities in this case will pay the relevant tax to the IRS in the USA and you receive the net dividend
What are the foreign dividend tax rates applicable to South Africans?
The following dividend withholding tax rates apply when you invest in a publicly traded company as a South African in the countries below:
| Country | Official1 | Tax treaty2 |
|---|---|---|
| UK | 20% | 15% |
| US | 30% | 15% |
| Switzerland | 35% | 15% |
| Luxembourg | 15% | 15% |
| Australia | 20% | 15% |
| Germany | 25% | 15% |
| Hong Kong | - | 10% |
| Ireland | 10% | 10% |
1 this is the official statutory tax rate the relevant country imposes on dividends for non-residents
2 South Africa has a tax treaty in place with a number of countries. This is allows you to pay less dividends tax. The table shows the agreed dividend tax rate the foreign country will charge on dividends received by South Africans.
“I invested in some US stocks. Will I get paid the dividend after 30% dividend tax and need to claim the difference? Or will 15% tax be deducted from the dividend as per the tax treaty?”
- you will need to complete a form called W-8BEN and submit it to the stock broker platform
- it is a form which enables the stock broker to claim the reduction as per the agreed tax treaty between the US and South Africa
What happens if you do not complete the W8BEN form? You will be charged the full 30% dividends tax