I am a digital nomad/perpertual traveler with no tax residence (therefore, not a tax payer for a country with a tax treaty with the US), and I invest in US funds that pay dividends. Is there any way to reduce/avoid paying 30% withholding on dividends paid by US companies (stocks) and US Treasury (bond interest payments) in these circumstances? Also, as a non-US citizen/resident, would purchasing a US bond rather than a bond ETF not mean interest payment exemption?
I thought ETFs domiciled in Ireland and other countries that appear to have lower taxes andf invest in US securities would be an answer to that, but I’ve seen contradictory data on this matter. For instance, I was first informed that an Irish ETF that invests in the S&P 500 would withhold only 15% when paying dividends, but it turns out that the amount is actually higher (35%) for people with no tax residence, so this did not appear to help. I see that if the ETF distribution accumulates rather than distributes dividends, this payment would be deferred, but I guess it would have to be paid eventually.
Any advice and tips on this matter is very much appreciated.
Consider investing directly in US bonds to avoid withholding on interest payments. For ETFs, check tax treatment closely; Irish-domiciled ones might not offer the expected benefit. Explore specialized investment vehicles for non-US investors. Consult a tax expert for tailored advice.
I’m not an expert, but to aviod withholding on US bonds traded in the US the OP would need to complete an W8BEN. I believe that is where the difficulty lies, because the OP doesn’t have a tax residency therefore doesn’t have a TIN for that form.
So the first task is to register for tax somewhere that doesn’t tax its non-residents for overseas passive income - Portugal NHR would have been ideal for this but sounds like that not possible.
An alternative could be the UK as non-resident tax payer, ie someone who has the right to live & work in UK to get a NI number but doesn’t spend sufficient days in the UK to pay tax. This might work technically too.
Hi Peter. Thank you for your message. Yes, I thought about investing in bonds directly, but even though I’ve seen sources claiming that bond interest isn’t taxed for non-US citizens, the broker was not very clear in this regard and didn’t want to commit to it saying that it may be taxed, so I was left a bit unsure on this matter. When you say “explore specialized investment vehicles for non-US investors”, are you thinking of anything in particular? And yes, I am currently looking for tax advice.
Thank you very much for your help!
…And as for tax residency, I am aware that I would need to fill a W8BEN. Portugal NHR is probably not available to me for two reasons: first, because I don’t earn enough to be eligible, and then… because I am a Portuguese national.
I have a Portuguese TIN from when I was a tax payer, but I wonder if using it would have tax implications (or any validity, really), and I guess I wouldn’t be eligible to decrease my tax burden on dividends via a US-PT tax treaty if I’m not a resident.
I registered as a resident in Georgia a couple of years ago and was a tax resident there. I lived over half a year in the country and paid income tax on my income, but despite the minimal cost, this requires actually living in the country for over half a year, and it just doesn’t seem worth the benefit of reducing tax on dividends, which aren’t that high anyway.
The W8BEN allows you not to pay witholding tax because you declare the interest will be taxed in your own country. If your taxable earnings are below the tax threshold you may well then incur zero tax but you cant sign the form if you are non resident because you are not subject to that tax in your own country. I would not try to get round this as the Feds have long memories. Personally I invest in growth ETFs as opposed to interest bearing ones. If you are non resident for US tax there is no capital gains tax due to the IRS.
Yes, that’s the problem: even though I should not be subject to 30% tax withholding for dividends, as a perpetual traveler (currently anyway) that hasn’t triggered tax commitments (whether in my domicile or other country of residence), I cannot rely on the W8BEN to claim it. The cost of paying extra tax on dividends doesn’t seem worth the residency options, but I thought I’d post the query in case anyone know of workaround.
I am told that if my ETFs are accumulating rather than distributing, there is no withholding on the accumulated amount, but I guess it will be taxed when I sell the assets, so I would just be delaying the inevitable.
I also have growth stocks, but there are particular bond-holding funds that play a part in my balanced portfolio. Peter (on this thread) suggested holding the actual bonds would be an option, since apparently bond interest isn’t subject to taxation for non-US citizens/residents (could you confirm this?), but they are not as liquid and convenient. It might be worth it, though. Thanks, spam!
Hi Miguel, to clarify I haven’t suggested this - I was commenting that in order to minimise withholding on US financial instruments you need to claim treaty benefits with somewhere else, and certify this with the W8BEN.
I can see now you’re already know this so for you it’s about finding a suitable jurisdiction - most people on this board would use Portugal NHR (because you’re exempt from tax on passive income without the need to remain in Portugal) but if you’ve been tax resident here in the the past 5 years that won’t work for you.
Yes, exactly - if you’re considering investing directly in US bonds traded in the US - you’ll need a W8BEN.
James, suggested investing directly. I think you’d be better served with offshore ETFs where you are not required to complete the W8BEN.
I invest in US-domiciled ETFs and I am not required to fill out a W8BEN. I think what you are suggesting is that if I invest in offshore ETFs then I the tax withholding matter (which W8BEN would potentially resolve) is no longer a problem.
I never looked into this, but I can imagine that these would not be very liquid instruments and I am not sure the issuer would be trustworthy. In any case, would you have any suggestions where I can find these? Thanks.
Yes, did you look at their Irish ETFs?
If you trust those companies then you can buy almost the same ETF but traded in Dublin - unless I’m misunderstanding you?
The 30% witholding tax for non-US residents or citizens (“non-US persons” a.k.a “nonresident aliens”) only applies to dividends issued by US companies, or ETFs or mutual funds domiciled in the US (note: distributions from ETFs or mutual funds are considered dividends even if they contain bonds).
In my experience, brokers always ask for a W-8BEN in order to consider a client a non-US person.
If you want to invest in US equities I suggest you to buy Irish-domiciled ETFs. The dividends of the individual stocks still have to pay witholding tax, but thanks to the tax treaty between UScand Ireland the rate is reduced to 15%, and Ireland won’t withhold any additional tax. However, the TER (total expense ratio) for those ETFs is slightly higher. An additional advantage is that in case of your untimely demise your inheritance will be safe from Uncle Sam’s IHT.
For additional detail I warmly recommend you the pages at Non-US investor's guide to navigating US tax traps - Bogleheads .
P.S. I’m not aware of US-domiciled non-distributing ETFs. On the other hand, they are a popular option for UCITS ETF (i.e. domiciled in Ireland, Luxembourg etc.)
