How Foreign Investors can reduce their Dividend and Interest Taxes in the US

United States law requires foreign investors to pay 30% of tax of their income derived in the US; this includes dividend and interest income in the stock market.

Before the passage of “Jobs and Growth Tax Relief Reconciliation Act of 2003” and “Tax Increase Prevention and Reconciliation Act of 2005”, laws that temporarily reduces the dividend income taxes from equity stocks to 15% until year 2011, the tax paid by US citizen investors is around 35%; actually, higher than the tax paid by foreign investors.

Too high tax for dividend has been recognized as a burden for income investor that is why it was lowered down to a more reasonable level. But this is only for the benefit of US citizen investors. How about for foreign investors in the US?

Unfortunately, foreign investors in the US are not covered by the laws mentioned; however, a foreign investor can take advantage of the tax treaty between the US and the country where the foreign investor is a citizen of, to lower his/her income taxes derived from the US. Usually, the taxes for dividend and interest agreed in the treaty are reduced by a significant level. For example, a Philippine citizen investor will have a reduce tax of 25% and 15% for dividend and interest income, respectively. What is more interesting is that these rates would be more permanent than the temporary reduce tax for US citizens.

Below are the reduce taxes of foreign investors as agreed in their tax treaties with the US.

Filed in: Money and Investing
Local date: March, 2010

« When to use Paypal or Wire Transfer?

Dividend Paying Stocks in the Philippine Stock Market »