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Interactive Options Course
Lesson 3 of 6
The US has tax treaties with approximately 70 countries. They are listed on IRS.gov and can be accessed for free. Do not assume that your country is not included, as some countries with treaties may surprise you given overall US relations with those countries.
• Most, but not all, tax treaties lower withholding on investment income (primarily dividend income) from 30%, which is what is required by the US income tax code (statutory withholding).
• The most common treaty rate is 15% or a 50% reduction from the statutory amount.
• Some treaties lower the rate further to 10%, while others only reduce it slightly to 25%.
• Many countries allow for a credit to be taken against tax due in your home country. This is country specific, so it is best to consult a local tax advisor on this issue.
• Do not forget that your W-8 on file with the account holder must be current.
• Remember that they expire every three years and must be updated if you move.
• If your W-8 lapses, then withholding at 28% on income kicks in. Theoretically, this might be better if you live in a country without a tax treaty as 28% withholding is better than the 30% withholding you are subject to;
• But 28% withholding includes withholding on gross proceeds from securities sales, whereas having a valid W-8 exempts proceeds from withholding.
• The Foreign Account Tax Compliance Act – commonly referred to as FATCA – imposes reporting requirements on US entities to foreign government. Aimed at getting US persons to report and pay US taxes on accounts and other income held outside the US, the law has had sweeping impact which has resulted in worldwide information sharing between governments.
• Because of this information sharing it is essential to keep your W-8BEN up to date with all custodians.
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The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Interactive Brokers, its affiliates, or its employees.
The information in this material is provided for informational purposes only and does not constitute tax advice and cannot be used by the recipient or any other taxpayer to avoid penalties under any federal, state, local or other tax statutes or regulations, or to resolve any tax issue.
When asked about the tax treaty between Kuwait and Canada I did not know what to click. I live and work in Kuwait. I ticked that the treaty does not apply to me. Is this correct? I don’t want to be paying tax as I’m in a tax free country. Thank you
Hello, thank you for reaching out. IBKR does not provide tax advice. Please consult a tax professional who specializes in your region regarding specific questions.
Hi, I am tax resident in the Netherlands, I’d like to know if there’s an automatic application of tax treaties between the Netherlands & Canada and the Netherlands & Brazil, if not can I send it to IBKR to apply it?
Hello, thank you for reaching out. U.S. tax treaties with some countries have different benefits. For a list, please view: https://www.ibkrguides.com/kb/article-1164.htm
Please note that we cannot provide tax advice, but you may find this webpage helpful: https://spr.ly/TaxInfocampus
Please consult a tax professional who specializes in your region regarding specific questions.
How to get rid of this?: ” Before you proceed to your brokerage account, please review the following account tasks. The following tasks must be completed in order to keep your account up-to-date.” “Document Submission / Ireland Interest Tax Form 8-3-6 for…” I do not want submit any documents
Hello, thank you for reaching out. The Irish Tax Authority requires us to collect withholding tax on interest earned in Ireland. This withholding is at a rate of 20% and must be deducted from interest payments to your account.
Please note withholding tax applies to all clients who are resident in Ireland, whether individuals (including partnerships) or companies.
Withholding tax does not apply to clients who are companies in countries that are members of the European Union (excluding Ireland) or companies in countries that have a Double Tax Agreement (DTA) with Ireland.
For other clients in the EU (excluding Ireland) or if you are a non-resident of Ireland but tax resident in a country with a Double Tax Agreement (DTA) with Ireland, you may complete Form 8-3-6, that will reduce or eliminate your withholding tax. In addition to providing your information, you will need to have the form completed by the tax authority in the country where you are a tax resident. Please review this User Guide for more information: https://www.ibkrguides.com/kb/en-us/article-4687.htm
Please note that IBKR does not provide tax advice. We hope this helps!
Estonia does not charge withholding tax at all. However on getting dividends from Merko, an Estonian domiciled company, IBKR took 7% withholding tax. When i queried this I was told it was not IBKR but someone else and they could not tell me who had taken this tax or why I had paid it given that Estonia is 0%. Makes me very nervous : who knows they might take 25% withholding tax tomorrow off any security and claim its not them even though the contract for sale is with IBKR and the withholding tax appears on the IBKR statement but they say they had to pay someone else who had taken the money. Bizarre. No explanation given to me on the phone made any sense at all.
Hi Jenny, thank you for reaching out. For more information on how withholding taxes are determined on dividends, please review this FAQ: https://www.interactivebrokers.com/faq?id=41559348
Please note that IBKR does not provide tax advice. Please consult a tax professional who specializes in your region regarding specific questions.
Hello, I have recently moved to, and I am a tax resident, a country with different tax rate on US dividends than my country of citizenship. Although last month I did update the W8 form and the tax residency, the US dividends this month were still taxed at 30% rate.Do i need to do anything else to take advantage of the new tax rate?Thank you!
Hello, thank you for reaching out. Generally, tax is withheld at a rate of 30% on payments of US source stock dividends and substitute payments in lieu. The rate of withholding may be reduced if there is a tax treaty between your country of tax residence and the US.Please note that we cannot provide tax advice, but you may find this webpage helpful: https://spr.ly/TaxInfocampus
Please consult a tax professional who specializes in your region regarding specific questions.