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Investors who hold the shares of foreign companies, whether as American Depositary Receipts (ADRs) or common shares, are holding investments that are subject to the tax laws of their country of issue. For example, for German issuers like Siemens, Daimler and Bayer, dividends paid to investors are taxed by Germany at 26.375% up front. This means that if the issuer pays an annual dividend of about $2.00, around 53 cents of your dividend will be paid directly to the German government in the form of withholding tax. This is similar to when an employer withholds taxes from the paychecks of employees and pays that money to the government.
However, if you are tax resident in the United States (most U.S. citizens are), you are entitled to a reduced German tax rate of 15% -- a reduction of 43%. This means that if you are a holder of German shares, over 10% of your dividend is currently owed to you by the German government. And, since Qualified Pension Plans are totally free of withholding tax, if your money is held through a pension plan, the Germans owe you back all of the withholding. You just need to know how to ask for it, and present proof that you are a U.S. resident and therefore entitled to the reduction. If you held 5,000 shares of the hypothetical German company from our above example, you would be eligible to receive a refund of over $1,000 from the government of Germany. If you don’t claim your money within 4 years of the original payment date, it’s gone -- there is a statute of limitations!
Germany isn’t the only country that withholds taxes from foreign shareholders ... practically all countries where you would be likely to invest do the same thing. Switzerland, Finland, Spain, Belgium, Japan, The Netherlands, France, Korea, Italy and Russia all practice withholding on foreign shareholders, just to name a few. Every year, billions of dollars belonging to U.S. investors is retained overseas, with only a fraction making its way back to U.S. shores. And it isn’t just U.S. investors who are eligible to receive more of their investment income, investors resident in most countries are eligible for similar tax reductions on their overseas investments.
So, how do U.S. investors go about getting their money back? The answer is they need to present proof that they are entitled to the special treatment afforded to U.S. residents under treaties arranged between the U.S. and foreign governments. However, these governments won’t trust just anyone to attest to who you are and your tax residency. In most cases they will only trust the U.S. government to verify that you are a tax resident of the United States.
This doesn’t mean that any U.S. government-issued ID will suffice - drivers licenses and passports cannot be used to claim your U.S. treaty benefits, only a U.S. Certificate of Tax Residency issued by the Internal Revenue Service (the IRS), which is also known as IRS Form 6166, will meet the needs of the foreign governments and withholding agents who must approve your request for tax relief. However, the process of applying for an IRS Form 6166 can be difficult (there is a 12 page instruction booklet) and the rate of rejection by the IRS is very high, which can lead to delays.
In order to make the process easier, Acupay provides a simple easy-to-use wizard which guides you through the application process. The Acupay wizard will also help you avoid making any mistakes that might delay your application. At the end of the process, you print out your completed form, sign it and either fax or email it back to Acupay - which bundles them up and transmits them efficiently to the IRS for processing. The IRS charges a fee per application to issue a Certificate of Residence; Acupay collects this fee (which is passed along to the IRS) plus a small handling fee to cover our processing costs, the sum of which you can pay securely by credit card.
Acupay can help you get back excess taxes that have been withheld from past dividend and interest payments, as well as work with your broker or custodian bank to try to make sure you receive the lowest possible tax rate in the future. We would be happy to talk to you about your foreign tax relief needs. To get started, you can email or call us at the details found in the "Contact Us" section, under "About Us"...or you can tell us a thing or two about yourself and register for news and updates by clicking on "Register to Receive Updates on New Developments" to the left, under the "Welcome" section.
How do you find out more? There are a number of great, free resources available on the internet where you can learn more about foreign tax withholding, double taxation treaties, and how you can benefit. We recommend you check out a great free resource made available by the accounting firm Deloitte & Touche called the "Deloitte International Tax Source" available at this link: www.dits.deloitte.com. To look up the tax treaty rates that apply to you, from within the Deloitte International Tax Source, click on "Quick Tax Treaty Rates Finder" under the menu item "Tax Treaty Rates". Remember: the term "Jurisdiction" refers to the country from which your securities were issued (i.e., Germany, for a holder of a share of Daimler AG).
If you want to get down to the nitty gritty details of the double taxation treaties themselves, they are all available online from a number of sources. The U.S. government publishes them on a website run by the Internal Revenue Service, available at this link: United States Income Tax Treaties - A to Z. Other countries have similar websites with links to the various tax treaties in force with other countries - here are the links to a few such websites:
Income Source Country: Austria
Income Source Country: Belgium
Income Source Country: France
Income Source Country: Germany
Income Source Country: Spain
Income Source Country: United Kingdom
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