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Published: October 21, 2009
You probably didn't know the United States
withholds a portion of dividends paid to many foreign investors.
This amount comes right off the top, before the payment even
hits an investor's account. Even after this cut, the foreign
investor will still have to pay taxes on what's left.
But the United States isn't just being greedy. Just about every
nation does something similar.
Switzerland withholds up to 35% of dividends paid to foreign
investors... Israel withholds up to 25%... Canada takes 15% off
the top.
Typically the yields found abroad
can make up the difference. For
instance, the high yields on
Canadian trusts can still make them
worthwhile to most investors, even
with the added withholding tax.
And truth be told, you can get this
withheld money back. Investors
filing for a foreign tax credit via
IRS Form 1116 can reclaim foreign
dividends withheld. But you won't
receive this cash until you file
your tax return, sometimes up to a
year after the actual dividend has
been paid.
But there's also a legal tax
loophole you can use to your
advantage. And it can mean more
income in your pocket from day one.
A Select Cadre of ZERO-Tax Nations
For decades the United States has wanted to attract
foreign investment. Likewise, many countries crave
American capital. As the richest nation in the world,
the United States is one of the most attractive sources
of investment in the world.
To promote mutual investment, the United States has
signed tax treaties with about 50 countries that reduce
the amount of dividends withheld.While the treaty
terms vary from nation to nation -- Switzerland, for
example, withholds only 15% of dividends paid to
American investors --there is a |
 |
| select cadre of nations
where the dividend withholding tax is zero. Every cent
paid by the foreign company makes it into your account. |
In total, less than two dozen countries either have tax
treaties with the United States that result in 0% withholding or
simply don't withhold dividends to foreign investors. Of those,
many are smaller nations that aren't exactly hotspots for income
investing.
But there are a few gems that offer attractive dividends and
zero withholding...
Brazil doesn't withhold a dime of dividend income. It's also one
of the best growth stories in the world. But you may not realize
the juicy dividends that can be found in the country. In my
High-Yield International portfolios, for instance, I hold a
Brazilian telecom yielding 11.9%.
Meanwhile, Hong Kong, the gateway to investing in China, doesn't
withhold any dividends either. And the United Kingdom, where I
uncovered a mining giant for my subscribers paying 13.2%, lets
investors keep every penny paid to them in dividends.
Now I'm not saying to ignore any country that withholds
dividends -- that would be like going to a restaurant and
limiting yourself to only one side of the menu. There are simply
too many high yields out there that are attractive, even if a
little is taken off the top.
But if maximizing short-term income is your primary goal, then
this "tax loophole" should be one of your favorite tools.
Good Investing! -- Carla Pasternak
Editor
High-Yield Investing |
