Scenario: USA & UK has tax treaty having a dividend withholding tax rate of 15%. (I am a USA-citizen investing in the UK - bought 5000 shares). Investment in the UK pays dividend of £0.40 per share. Exchange rate = $1.61 / £ My pre-tax net US dollar dividends is equal to: A) (5000 x £0.40 x $1.61 ) = $3220 B) (5000 x £0.40 x $1.61 ) x (0.85) = $2737 Schweser seem to go with answer B. Are they correct or wrong? THANKS!
due to the treaty… In UK - it is taxed to the rate of 15%. when you come to US -> the remaining 85% is all that is taxed. Otherwise - it would be double taxed. The treaty is doing just that. overall - the dividend is taxed to the 100% extent only 1 time.
USA tax would be at 28%. so the 15% would be a tax credit… based on your reply above, are you saying that it should be ans A?
if we are only interested in a pre-tax dividend… shuoldnt we forget about the 15% tax anyway?
15% tax is charged on UK on the full amount of dividend. when the dividend arrives on the US side of the fence - you are allowed to remove the 15% of the dividend and then charge the 28% US tax on the remaining 85% of the dividend. if you charged the US tax rate on the full dividend - the benefeciary is being dinged twice with the tax. Tax treaty allows him to be taxed only once on the entire 100% of dividend amount. No - I meant Schweser’s answer was right.
O hyeahhh thats right… we have to be taxed by 15% in the UK anyways… THanks
Please, correct me if I’m wrong: The dividend is taxed at the highest rate of either your nation or your investment nation. For example: - Your nation: div is taxed 10%, investment nation div is taxed 6% (withholding tax) then you pay 6% @ foreign country and only 4% @ your nation - Your country tax dividend @ 6%, investment nation tax dividend @10%: you only need to pay dividend tax 10% @ foreign country. Dividend is taxed only once @ the highest div tax rate?
I have a question related to this topic: Say you are being taxed on a capital gain you earned in another country. You bought the stock three months ago. When calculating the gain, could the initial buy be translated at the current exchange rate or at what the exchange rate was when you bought the stock? Thanks
I have a question related to this topic: Say you are being taxed on a capital gain you earned in another country. You bought the stock three months ago. When calculating the gain, could the initial buy be translated at the current exchange rate or at what the exchange rate was when you bought the stock? Thanks
NTP Wrote: ------------------------------------------------------- > Please, correct me if I’m wrong: > > The dividend is taxed at the highest rate of > either your nation or your investment nation. For > example: > - Your nation: div is taxed 10%, investment nation > div is taxed 6% (withholding tax) then you pay 6% > @ foreign country and only 4% @ your nation > - Your country tax dividend @ 6%, investment > nation tax dividend @10%: you only need to pay > dividend tax 10% @ foreign country. > > Dividend is taxed only once @ the highest div tax > rate? Only if there is a tax treaty going on between the nations. Otherwise you end up paying 1. 6% to the investment nation and then 10% to your nation 2. 10% to the investment nation and then 6% to your nation I believe if there is a tax treaty, then for the second option, the investment country will only take 4%, will give you a tax credit for the remaining 6% and then you pay 6% to your nation.
Tks idreesz. My concern is: what happens if investment nation div tax is lower than your nation dividend tax (the first case)?. Surely, there is a tax treaty. I agree with you on the second case wherein investment nation div tax is higher than your nation div tax
NTP Wrote: ------------------------------------------------------- > Tks idreesz. > My concern is: what happens if investment nation > div tax is lower than your nation dividend tax > (the first case)?. Surely, there is a tax treaty. > > > I agree with you on the second case wherein > investment nation div tax is higher than your > nation div tax You answered it correctly. You will pay only 4% to your nation.
look at this question US investor invest in UK - 100 shares, receives dividend of 2 per share, witholding tax rate in UK is 15%, exchange rate is $1.175/pound, USA tax rate 30% how much does the US investor declare at home?
This is my understanding. 100 x 2 = Pound 200 Tax rate in UK = 0.15 x 200 = 30 pound When converted to US = 1.175 x 30 = 35.25$ Income transferred to US = 200 x 1.175 = $235 Taxes on $235 = 0.30 x 235 = $70.5 But $35.25 was already paid in UK So $35.25 will be needed to pay in US and the rest of $35.25 will be given back as tax credit.
Agree with idreesz
thats how i understand it as well. i think declaration is the gross translated dividend and then you take tax credit on whats has already been withheld later