No they don’t. Where have you read that?
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I am also wondering about the source for this? That’s the whole reason why people invest in Irish-domiciled ETFs, they don’t have withholding tax + the fund itself only pays 15% WHT on their US holdings.
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Now, this is embarrasing… (don’t laugh!) A month or so ago, I actually went out of my way to look for Ireland-domiciled ETFs to replace a number of US counterparts just so I could reduce my tax burden, and after going through all the trouble of researching, checking charts for compatibility/performance, expenses ratio, actual shares I wanted for each, etc. I go on a AI bot trip and without double-checking this (it is not available on ETF documentation), Gemini tells me that digital nomads, because they cannot claim a treaty and have no tax residency, would have to pay a 35% tax withholding on dividends. I was so upset after all that trouble, and it came across as reasonable, that I just dropped it all and defaulted to my current US funds, to revisit this issue later. I guess that, “for a chance”, the information it provided was incorrect. Please disregard that, I have since confirmed that this is the way to go.
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…And Thomas, another advantage to having a tax residency was to claim a tax treaty that could reduce tax withholding on these US ETFs, from 30% to 15%. If I get 15% already on Irish ETFs, that’s another thing that a tax treaty would probably not help with. I mean, would there be a treaty between Ireland and Georgia that would reduce it further? Not to mention that Georgia doesn’t foreign income, passive or otherwise, whether it’s capital gains or not.
Thanks for the link, Enzo! Yes, I already have a set of tickers to make the switch. The TER could be a little higher, but that’s fine. And for the occasional trades I just don’t care.
No, generally in this case you can’t reduce it further. The 15% isn’t paid by you, but by the fund to the US. Well, technically it’s withheld by the companies distributing dividends to the fund, but you get what I mean. The WHT rate from Ireland’s side is already 0%, so any tax treaty between Ireland and your country of residence wouldn’t have any impact.
Though there are some countries which would allow you to deduct (part of) the 15% paid by the fund on their US assets from your personal tax return there. But that would already mean you’re paying extra taxes in that country which you aren’t paying today, so it wouldn’t benefit you currently.
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Oh but that’s a different issue, which concerns Investors in US securities who cannot provide either a social security number (SSN) or other TIN proving that they are US persons, or file a W-8BEN form declaring that they are nonresident aliens. It’s called “backup withholding” and its rate is currently 24%, but it used to be 28% before the 1st of January 2018 when it was reduced by the Tax Cuts and Jobs Act (TCJA; Pub. L. 115-97), and, if I remember correctly, there was a time even earlier when it was 35%. The horrible thing is, this is a percentage of any received payment, not only of dividends: also payments for the disposal of a security! See: Topic no. 307, Backup withholding | Internal Revenue Service . However, it’s possible to recover that amount by submitting the missing forms.
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Well, I am an investor in US securities that cannot provide an SSN or TIN proving that I am a US person nor can I file a W-8BEN form declaring that I am a non-resident alien. Will I be taxed more than 15% while holding Ireland-domiciled ETFs?
No, by investing in an Irish ETF you don’t hold a US security but an Irish one.
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Yes, but he meant investing in, which I certainly do. By the way, should I expect to be fully taxed on bond interest if holding a US Treasury bond?
I’m not sure I follow? Are you saying that you’re holding US securities directly (outside the Irish-domiciled ETFs)?
Either way, you can still submit a W-8BEN when requested, just don’t complete Part II (Claim of Tax Treaty Benefits).
The certification part of the form lists these items which you certify under penalties of perjury, all of which are true in your case:
• I am the individual that is the beneficial owner (or am authorized to sign for the individual that is the beneficial owner) of all the income or proceeds to which this form relates or am using this form to document myself for chapter 4 purposes;
→ You are indeed the beneficial owner of the income
• The person named on line 1 of this form is not a U.S. person;
• This form relates to:
(a) income not effectively connected with the conduct of a trade or business in the United States;
(b) income effectively connected with the conduct of a trade or business in the United States but is not subject to tax under an applicable income tax treaty;
(c) the partner’s share of a partnership’s effectively connected taxable income; or
(d) the partner’s amount realized from the transfer of a partnership interest subject to withholding under section 1446(f);
• The person named on line 1 of this form is a resident of the treaty country listed on line 9 of the form (if any) within the meaning of the income tax treaty between the United States and that country; and
• For broker transactions or barter exchanges, the beneficial owner is an exempt foreign person as defined in the instructions.
You also certify that the information entered is correct to the best of your knowledge, so you may ask yourself if it’s OK to enter a permanent residence address where you are note actually tax resident.
The instructions state:
If you do not have a tax residence in any country, your permanent residence is where you normally reside.
So it’s clearly not a requirement to be tax resident somewhere in order to complete the form. Just don’t claim any treaty benefits.
I’m pretty sure that qualifies as portfolio interest (as long as it’s registered, not bearer), which is not subject to withholding tax for non-resident aliens.
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Well, bought on the secondary market via my broker (IBKR), not on auctions or Treasurydirect, but sure, I was holding (up until today, it so happens) three short-term notes, 2, 3 and 5 year. I’m not sure what you mean by directly. And Ireland domiciled ETFs, I wasn’t holding due to the tax concerns I expressed.
I haven’t looked at my W-8BEN in a while, but I will make sure that part is filled correctly, thanks.
Hi Thomas. Can I bother you to explain what you mean by these holdings qualifying as “portfolio interest (as long as it’s registered, not bearer)”? My brokerage account is registered as that of a non-resident alien.
The broker said they don’t withhold tax on bond coupon payments, but doesn’t comment on taxation, so for the sake of clarity (and ETF convenience) I sold those bonds and just went with a few Ireland-domiciled ETFs, but if I could confirm that the interest from those, being considered portfolio interest, is not taxable in my case, I would just switch back. I mean, if the broker doesn’t withhold interest and I don’t have tax filing obligations in the US, I guess that means it’s tax-free for non-US aliens, right? ChatGPT confirms my exemption, but AI bots aren’t the most reliable tools out there… 
One extra advantage of fixed income (and I only hold short-term Treasuries) is that I can hold them to maturity. An ETF with capital depreciation could just continue underwater.
Thank you and I’m sorry for taking up so much of your time.