If you are unaware, three key types of withholding tax are imposed at various levels in the United States:
- Wage withholding taxes,
- Withholding tax on payments to foreign persons, and
- Backup withholding on dividends and interest.
What does this mean to you, the investor?
Simple. Dividends is taxed at 30%.
Anyway, just to relate my experience, I picked up a single unit of AAPL some time ago via Standard Chartered Online Trading. (and the exchange rate sucked, by the way)
Whaaaaaat? Now, just hang on a minute, isn't this an index investing blog? Well, yes, it is. My "investment" fund is solely devoted to index investing.
However, my "hobby" fund is meant for whatever I want to use it for. Some people collect stamps, some people collect toys ; I collect stocks. You are not encouraged to this. At all.
Okay, now that I've addressed this, let's head back to Tax Withholding in the United States. I picked up AAPL not because of it's dividends, but because of this I was able to see how it worked.
On April 23, 2013, Apple's Board of Directors approved a 15% increase in the Company’s quarterly dividend and has declared a cash dividend of $3.05 per share of the Company's common stock. The dividend is payable on May 16, 2013, to shareholders of record as of the close of business on May 13, 2013.
On the 20th, the dividend was promptly credited into my Standard Chartered account.
As you can see, the dividend is indeed USD $3.05 as stated in Apple's website. Notice there is another record stating US Withholding Tax of USD $0.92. Well, guess $3.05 * 30% = $0.915.
If you're following the advice of Millionaire Teacher Andrew Hallam and investing into a world stock ETF such as Vanguard Total World Stock ETF (which gives quarterly dividends), now you know why your dividends are shrinking! Of course, this applies to any dividends paying stock in the US, such Microsoft, Walmart and Intel. Noobie investors, take note!
Hi Just,
ReplyDeleteWould you know what is the treatment for US tracking ETFs like SPDR S&P 500? The constituents (US based) would pay dividends and somehow they will have to trickle back to the original investor; how much - if anything - gets lost on the way?
Many thanks
Alex
Hi Alex,
DeleteTo be honest, I'm not too sure. I would assume that the dividends paid out by the ETFs would be treated the same way i,e, 30% for foreign investors. Sorry about that, can't really help you with this one.
Distributions from ETF are generally taxed 30% for foreign investors. There are 3 types of distributions: Dividends, long-term capital gains and short-term capital gains. Only long-term capital gains attract no withholding tax. The other 2 attract 30% withholding tax.
DeleteWhat about US listed ETFs that hold only foreign stock? eg. DB X-TRACKERS MSCI EAFE HEDGED, DBEF? Does that still attract a 30% withholding tax on 'foreign' (ie non-US) dividends?
ReplyDeleteI gues my question, is whether the place of listing is relevant or whether it is the place of the underlying investment?
Btw, there is a way to 'purchase' US stock without paying withholding tax using the Canadian Horizons S&P 500 (HXS.U) - an interesting Total Return Swap.
You would be better off investing in ETFs which are listed in countries that do not charge withholding tax to Singaporean investors. These include Hong Kong and Singapore, where quite a bunch of good ETFs are listed.
DeleteI compiled a list on my blog, after I "discovered" withholding tax by making the same error as the author of this blog. The list is at: http://singvestor.com/withholding-taxes-for-singaporean-investors-of-foreign-stocks/