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Where Taxpayers and Advisers Meet

US withholding tax on dividends

Brightonian
Posts: 99
Joined: Wed Aug 06, 2008 3:31 pm

US withholding tax on dividends

Postby Brightonian » Wed Nov 28, 2018 3:10 pm

I am puzzled and wonder if anyone can enlighten me. My client received dividends from the US parent of a company of which he is a director. 25% tax has been withheld. He has a tax liability in the UK, as the dividends exceed the dividend allowance. He is an additional rate taxpayer so his UK liability is at 38.1% Normally I would restrict the foreign tax credit to the treaty rate of 15% but am wondering if there is some special rate applicable because he is a director of the UK company. I can't see anything in the DTA about it. I have come across withholding of 30% before but can find nothing suggesting that 25% is ever withheld from US dividends paid to non-residents. Has anyone else ever come across this?

DavidTreitel
Posts: 202
Joined: Thu Aug 16, 2012 4:31 pm

Re: US withholding tax on dividends

Postby DavidTreitel » Thu Nov 29, 2018 1:45 pm

The normal withholding tax rate on FDAP income is 30%, reduced under the UK treaty to 15%: https://www.irs.gov/individuals/international-taxpayers/fixed-determinable-annual-periodical-fdap-income

Sounds likely the payer has applied the wrong treaty rate. To recover this, the individual will need to both apply for an ITIN and file a non-resident US tax return. Glad to assist with both if needed.

Brightonian
Posts: 99
Joined: Wed Aug 06, 2008 3:31 pm

Re: US withholding tax on dividends

Postby Brightonian » Thu Nov 29, 2018 2:47 pm

Thank you for taking the time to reply. I think I may have located the problem, however. The company is headquartered in Canada and is listed on both the Toronto exchange and NASDAQ. They pay dividends in US dollars but I am wondering if the dividend was perhaps paid in Canada. That would account for the 25% withholding tax. The fact it was paid in US dollars threw me.

mw01
Posts: 6
Joined: Tue Dec 18, 2018 5:18 am
Location: Birmingham
Contact:

Re: US withholding tax on dividends

Postby mw01 » Thu Jan 03, 2019 1:13 pm

The normal withholding tax rate on FDAP income is 30%, reduced under the UK treaty to 15%: https://www.irs.gov/individuals/international-taxpayers/fixed-determinable-annual-periodical-fdap-income

Sounds likely the payer has applied the wrong treaty rate. To recover this, the individual will need to both apply for an ITIN and file a non-resident US tax return. Glad to assist with both if needed.
Can this be done retroactively David?


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