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Bond ETF withholding tax
- Thread starter adamchubb
- Start date
Quote from adamchubb:
I'm a non-US investor, interested in bond ETF (e.g. LQD, HYG, JNK). Does anyone know whether non-US investors have to pay any dividend withholding tax??? What would be the standard tax rate?
For LQD, see the prospectus
http://prospectus-express.newriver.com/summary.asp?clientid=isharesll&fundid=464287242&doctype=sai
p. 131
Taxation of Non-U.S. Shareholders.
Dividends paid by a Fund to non-U.S. shareholders are generally subject to withholding tax at a 30% rate or a reduced rate specified by an applicable income tax treaty to the extent derived from investment income and short-term capital gains.
Dividends paid by a Fund from net tax-exempt income or long-term capital gains are
generally not subject to such withholding tax. In order to obtain a reduced rate of withholding, a non-U.S. shareholder will be
required to provide an IRS Form W-8BEN certifying its entitlement to benefits under a treaty. The withholding tax does not
apply to regular dividends paid to a non-U.S. shareholder who provides a Form W-8ECI, certifying that the dividends are
effectively connected with the non-U.S. shareholderâs conduct of a trade or business within the U.S. Instead, the effectively
connected dividends will be subject to regular U.S. income tax as if the non-U.S. shareholder were a U.S. shareholder. A nonU.S. corporation receiving effectively connected dividends may also be subject to additional âbranch profits taxâ imposed at a
rate of 30% (or lower treaty rate). A non-U.S. shareholder who fails to provide an IRS Form W-8BEN or other applicable form
may be subject to back-up withholding at the appropriate rate.
For taxable years beginning before January 1, 2014, properly-reported dividends are generally exempt from U.S. federal
withholding tax where they (i) are paid in respect of the Fundâs âqualified net interest incomeâ (generally, the Fundâs U.S.
131 source interest income, other than certain contingent interest and interest from obligations of a corporation or partnership in
which the Fund is at least a 10% shareholder, reduced by expenses that are allocable to such income); or (ii) are paid in
respect of the Fundâs âqualified short-term capital gainsâ (generally, the excess of the Fundâs net short-term capital gain over
the Fundâs long-term capital loss for such taxable year). However, depending on its circumstances, the Fund may report all,
some or none of its potentially eligible dividends as such qualified net interest income or as qualified short-term capital gains
and/or treat such dividends, in whole or in part, as ineligible for this exemption from withholding. In order to qualify for this
exemption from withholding, a non-U.S. shareholder will need to comply with applicable certification requirements relating
to its non-U.S. status (including, in general, furnishing an IRS Form W-8BEN or substitute Form). In the case of shares held
through an intermediary, the intermediary may withhold even if the Fund reports the payment as qualified net interest
income or qualified short-term capital gain. Non-U.S. shareholders should contact their intermediaries with respect to the
application of these rules to their accounts.
In general, U.S. federal withholding tax will not apply to any gain or income realized by a non-U.S. shareholder in respect of
any distributions of net long-term capital gains over net short-term capital losses, tax-exempt interest dividends, or upon the
sale or other disposition of shares of a Fund. If a Fundâs direct or indirect interests in U.S. real property were to exceed certain
levels, distributions to a non-U.S. shareholder from a Fund attributable to a REITâs distribution to a Fund of gain from a sale
or exchange of a U.S. real property interest and, in the case of a non-U.S. shareholder owning more than 5% of the class of
shares throughout either such personâs holding period for the redeemed shares or, if shorter, the previous five years, the gain
on redemption will be treated as real property gain subject to additional taxes or withholding and may result in the non-U.S.
shareholder having additional filing requirements.