Withholding tax on foreign dividends

Anna from Austria owns shares in a US company. When the company pays a €100 dividend, the US doesn't transfer her the full €100, it withholds part of it first. This deduction at the source is called withholding tax.

How much a country withholds

Without any treaty, the US could withhold up to 30 percent. Because Austria and the US have a double taxation treaty, the rate for private investors usually drops to 15 percent in practice, as long as the broker has the right form on file for you. Of the €100 dividend, €85 then reaches Anna, and €15 stays in the US.

How the credit works

At home, Anna still pays tax on the full €100 dividend, in Austria 27.5 percent capital gains tax, so €27.50. Austria credits the €15 already withheld in the US against that. Anna only pays €12.50 more at home. In total she has paid €27.50 in tax, not €42.50. Up to the rate the treaty provides for, usually 15 percent, this credit happens automatically through the tax return or directly through the bank.

What you can reclaim

If a country withholds more than the treaty allows, for example because the broker had no form on file and the full 30 percent was deducted, your home country still only credits the treaty rate. The difference, 15 percentage points in this example, has to be reclaimed directly from the foreign tax authority. That takes time, often several months, and for small amounts the effort barely pays off. Some brokers fill in the required form correctly from the start and save you this step entirely.

What to watch for with brokers and ETFs

For US stocks and US ETFs, most brokers require a form called a W-8BEN, confirming that you're not a US person. Without this form, the US automatically deducts the full 30 percent. With ETFs, fund domicile matters too: an Ireland domiciled ETF holding US stocks usually pays only 15 percent withholding tax on US dividends, while a Luxembourg domiciled ETF on the same stocks often pays 30 percent. When choosing between two otherwise similar ETFs on the same index, it's worth checking the fund domicile, ideally Ireland for US stocks.

Withholding tax rates in Europe

This is how much the countries covered on this site withhold by law from dividends paid to private investors abroad. With a double taxation treaty the burden usually drops to 15 percent, and you have to reclaim the rest.

The special case of REITs

Dividends from US REITs, publicly traded real estate companies, don't qualify for the reduced rate under most treaties. Withholding tax on them often stays at 30 percent regardless of the form.