Foreign Tax Witholding on Dividends
Background: My IRA custodian is Vanguard. They used to use Pershing for stock trading but recently changed to their own in-house organization.
I hold a few foreign dividend paying equities, all listed on the NYSE. Pershing never withheld foreign tax on these securities but now Vanguard is withholding 15%. Who is right???
In other words, are dividends PAID to an IRA subject to foreign tax withholdings?
OldEd
Permalink Submitted by Alan Spross on Wed, 2009-08-05 02:34
It depends on the tax treaty between the US and the particular foreign government. With the exception of Canada, where you can file a form directly with the Canadian Govt for reimbursement, these tax withholdings are not recoverable and a net cost of foreign stocks held in IRA accounts. While the same withholding occurs with international mutual funds in IRAs, you do not see the dollars withheld, your net dividend income from the fund is just reduced. And of course, the foreign tax credit that you can take on taxable account holdings is not available in tax deferred accounts.
That still does not answer the question of which clearing firm was correct with respect to your holding. What country received the withholding?
Permalink Submitted by Edward Congleton on Wed, 2009-08-05 13:59
I had dividend witholding for Canadian and Brazilan stocks.
Permalink Submitted by Alan Spross on Wed, 2009-08-05 21:34
My understanding is that you can file an NR7-R with the Canadian Govt to recover the withholding on a Canadian Corportion, but NOT for a Canadian Royalty Trust. For the Corporation, this is probably not worth the effort for small amounts as the form completion and red tape are considerable. Do not know about Brazil.