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US Witholding tax for index ETFs
Posted: Fri Sep 04, 2020 4:01 am
by adamu
This has come up in a few discussions recently, but does anybody know how the US withholding tax works on funds like VTI, VOO?
Is withholding tax charged as part of the fund's expenses on the individual dividends of fund's investments (Apple, Amazon etc.) pay *and* on the ETF's dividend? Or is it tax-efficiently wrapped up? If it's double-taxed, what withholding tax rate is used for the individual stock dividends? Since it's a US-listed ETF, it sounds unlikely they'll use the US-Japan tax-treaty rate of 10%.
For international funds like VT, there is also going to be withholding tax for each origin country too, not sure what that rate will be either. Sounds like it'll be determined by the US' tax treaties rather than Japan's.
Re: US Witholding tax for index ETFs
Posted: Fri Sep 04, 2020 6:37 am
by Kanto
If your Japanese is up to the task (Mine is not), I believe Rakuten did a decent breakdown of the issue. This explanation is more focused on Japanese investors.
https://www.rakuten-sec.co.jp/web/info/ ... 31-05.html
Re: US Witholding tax for index ETFs
Posted: Fri Sep 04, 2020 6:39 am
by fools_gold
adamu wrote: ↑Fri Sep 04, 2020 4:01 am
This has come up in a few discussions recently, but does anybody know how the US withholding tax works on funds like VTI, VOO?
Is withholding tax charged as part of the fund's expenses on the individual dividends of fund's investments (Apple, Amazon etc.) pay *and* on the ETF's dividend? Or is it tax-efficiently wrapped up? If it's double-taxed, what withholding tax rate is used for the individual stock dividends? Since it's a US-listed ETF, it sounds unlikely they'll use the US-Japan tax-treaty rate of 10%.
For international funds like VT, there is also going to be withholding tax for each origin country too, not sure what that rate will be either. Sounds like it'll be determined by the US' tax treaties rather than Japan's.
I looked into this a while back. I'll see if I can find a link later.
Basically, the US withholding tax is only deducted from the total fund dividend. It would be impossible to take the withholding tax out before the dividend is distributed because the rate of the withholding tax depends on the residency of the ETF holder (for example Singaporeans pay 30%).
So, US stocks would be subject to the withholding tax only once when you are paid the dividend.
For foreign stocks held by the fund, withholding taxes would first be deducted by the relevant countries. That rate would depend on tax agreements between each country and the US. After that, there would also be the 10% US withholding tax paid on the total dividend.
Re: US Witholding tax for index ETFs
Posted: Sun Sep 06, 2020 5:54 am
by fools_gold
Here's a link explaining the various levels of withholding tax for ETFs. Scroll down to the "Multiple levels of dividend tax withholding" section.
https://www.bogleheads.org/wiki/Nonresi ... ciled_ETFs
