Personal Investment Notes

If you own a stock listed on a foreign exchange you probably have a foreign tax withheld.

They will take taxes out of your foreign dividends. The withholding rate depends on how your account’s tax status is set up at your broker. There are three possible withholding rates: UNFAVORABLE, FAVORABLE, and EXEMPT. Generally your tax status depends on your domestic tax status in addition to the tax treaty status that your country of residence has with the country in which the security’s underlying business is headquartered. If you’re an individual investor, you probably don’t have exempt status. If you’re an individual investor in the U.S. the current tax treaty status entitles you to the FAVORABLE tax withholding status, which is
currently 15%.

Note the foreign tax can be claimed as a tax credit on your tax return meaning the money is applied toward paying your tax.

It is possible to get the withholding back, but probably not for you. If you had foreign taxes withheld and think you were entitled to a lower withholding rate, you should contact you broker, and they can
file a Split Letter for Tax Reclamation purposes with DTC and/or the paying agent.

For a helpful tool in determining foreign tax withholding rates see:
http://www.dits.deloitte.com/TaxTreatyRates/treatyRatesLocator.aspx

Example

The MLP, Energy Resources (ERF), is a Canadian entity. ERF pays their dividends in Canadian funds, and
that is where exactly the exchange to US funds occurs, is at the discretion of the broker, but it nevertheless does affect how much you can expect to receive.

From one of ERF’s dividend notices:

Re: the effective foreign dividend yield:
Next dividend rate: CDN$0.42 /share
Div pay frequency: monthly (12)
Current share price: CDN$43.93 /share
Dividends per year: CDN$5.04
Yield @ EXEMPT rate: 11.47%
Yield @ FAVORABLE (15%) rate: 9.75%
Yield @ UNFAVORABLE (25%) rate: 8.60%

Remember: It’s always a good idea to check the company’s website under Investor Relations for accurate information regarding a security.