Claiming back US dividend withholding tax on non-US equity ETF

As I am not a US citizen, the dividend that I receive from US-listed ETF are subject to 30% withholding tax. It is OK for US equity ETF, such as Vanguard Total Stock Market ETF (VTI) that I own, because the dividend originated from US companies. However, for non-US equity ETF, such as Vanguard Emerging Markets Stock ETF (VWO), the dividend is also subject to the withholding tax. Is there a way to claim back this withheld tax on non-US equity ETF from Uncle Sam?

How to claim?

Well, a Taiwanese investor/blogger by the name of greenhorn has successfully claimed back withheld tax for non-US equity ETF dividend. He detailed the steps in Filing for Tax Refund with Form 1040NR (sorry, it is written in Mandarin). To be able to do this, you need Form 1042-S that you broker (hopefully) send you every year, and the form must show that you have overpaid the tax, as shown in the figure below (from the above article by greenhorn).

Source: greenhornfinancefootnote.blogspot.com

Source: greenhornfinancefootnote.blogspot.com

To be specific, in item “Income Code 06”, Gross Inome (Box 2) should only include US-sourced dividend (e.g. VTI), such that Gross Income (Box 2) times 30% should be less than U.S. Federal tax withheld (Box 7), i.e.

B*30% < C

The difference (C – B*30%) is the overpaid tax that you can claim back. This is good news to me as I can now claim back the withheld tax of my VWO.

But …

However, my 2007 Form 1042-S from optionsXpress shows that A*30% = B, as shown below.

Form 1042-S from optionsXpress

Form 1042-S from optionsXpress

This means optionsXpress does not differentiate between US- and non-US-sourced dividend. My VWO dividend was included in the Gross Income (Box 2) and therefore, I could not claim back my withheld tax from Form 1042-S. The form does not show that I have overpaid the tax, as A*30% equals B.

This is not unique to me, as others have reported that their brokers also include both US and non-US sourced dividend as Gross Income in their Form 1042-S. In Filing for Refund of Overpaid NRA Withheld Tax with Form 1040NR, readers of the article reported that Zecco and MBTrading are two of the brokers that do this, making the Form 1042-S not suitable to claim back withheld tax. Other readers and the blogger greenhorn himself reported that Form 1042-S from eTrade and FirstTrade do differentiate between US- and non-US-sourced dividend, hence effective for claiming back withheld tax.

So, for me, I gave up this avenue to claim back withholding tax on my VWO dividends.

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12 responses to “Claiming back US dividend withholding tax on non-US equity ETF

  1. Pingback: Sell VWO to cut future dividend withholding tax? « The Mamak Stall Investor

  2. I seriously do not think it is possible to claim back the withholding tax. Singapore has no reciprocal double tax treaty with US as far as dividends are concerned.

    Perhaps that Taiwan has a double tax treaty with US that I am not sure.

    Anyway there are many choices outside US that you can invest ETF in. There is nothing attractive in US to invest anyway except those toxic waste like ETNs and swap-based inverse leverage ETFs.

  3. I invested in Oil Up Macroshares (UOY). The fund closed in June and the units were cashed out and returned to investors. Except my brokers think its a dividend, it is called a ‘distribution’ on the press release from Macroshares, and they have taken 30% of the cash as WHT! So I have actually LOST 30%!!! I am working on a way of getting it back as it is clearly incorrect. But I am now cured from buying US ETFs… the problem is that is where most of the liquidity is…when will Asian investors wake up and start buying ETFs here!!

  4. What if one makes a loss on a share sale. cant the loss be claimed against the witholding tax.. or is that only dividend related… it does not seem right to make losses every year (more fool me) on my share portfolio via US Ameritrade, and be able to claim nothing back from any authority.. US or Home Country

  5. am I right to say there is no way for Sporean to claim back the 30% with holding taxes?

  6. There is chance to claim back the withholding tax If you come across a stock broker that produce the required form (likely a stock broker based in USA and you can open an account with them if you wish),

    For me, I have not been successful with optionXpress. We need the stock broker who can produce Form 1042-S and differentiate between US- and non-US-sourced dividend (see the post). Other brokers that I have used (Saxo, DBS vickers online, Standard chartered bank) do not produce Form 1042-S, so no way for me to claim back the withholding tax.

    • I am a non Singaporean and live in Indonesia and was intending to open a trading account with Standard Chartered Singapore. Does Standard Chartered not issue Form 1042S even with holding tax on dividends paid out by U.S Companies ? Is there any broker in Singapore that does ?

      • Hi, I have US ETF in Standard Chartered bank (scb) but
        scb does not issue form 1042-S. The other broker that I have used before, option express, issues the form but not usable to claim back the tax due to the reason given in the above post. E-trade is another USA based broker with Singapore branch but I have not used it, and you might want to enquire them about the form.

  7. This problem of double taxation is already a non-existence problem. Just don’t trade on the US stock market. There are alternative stock exchange which do not impose this double taxation on dividends – and the wonderful part it is accessible by Singapore local based brokers.

  8. Pingback: Uncle Sam Is Watching: Dividend Withholding Tax | The Lepak Investor

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