We were having some good conversation on the topic withholding tax - help section of the forum when i noticed solution has been applied to the thread so maybe we can continue discussion on the investing section.
Reading through various withholding tax bracket people from all over the world have been paying - the highest being up to 35%
Is it still worth investing in sole purpose dividend stocks that incur withholding tax and at what % withholding tax would people be put off as the risks that comes from investing now outweighs the returns on capital invested?
Difficult question to answer as users would be from different tax jurisdictions with different treaty rates, similarly also having different goals.
Personally I am a long term investor so I look for total return rather than focus on pure growth/income plays.
I think the highest tax rate on income I’ve paid to date is about 15%, but not enough of a dent on the total return to be of concern.
Similarly there are some good income stocks that I see as undervalued on a short to medium term so can provide both growth and good income even after taxes.
As Dougal says, it probably depends on your tax juridiction.
In my case, I can offset most of the dividend withholding taxes paid against my income tax, virtually removing a good chunk of what’s been withheld on my net total income level; but for the purpose of reinvesting for example, it doesn’t affect the fact that I received a lower cashflow, and hence can only afford lower reinvestment.
I’m seriously considering selling my EU stocks, even though I bought them at attractive entry points, due to the impact of withholding taxes. While my portfolio has grown, the tax burden has also increased, currently paying around 25–26% withholding tax which feels disproportionate given the risks taken.
These holdings are within my ISA, but I’m concerned about the lack of relief mechanisms. Is there no trade agreement or tax treaty in place that would mitigate these withholding taxes for UK residents? It seems unfair that we are taxed so heavily as if we are not Europeans anymore but adversaries.
I would really appreciate guidance on whether there are options to reduce this tax impact or strategies I could consider before deciding to exit these positions.
In my country the dividends tax is 28%. If withholding tax is 15% I need to declare that I already paid a tax and then I have to pay more 13% of taxes to make 28%.
That’s why I prefer ETF, because they don’t have withholding taxes. That means I can use the full amount to earn interest during several months before having to pay taxes
Below is the UK dividend tax rate for resident, however you cannot reclaim EU withholding tax on ISA dividends from HMRC. The ISA shelters residents from UK tax, but foreign WHT still applies and is a “dead cost.” The UK does not apply WHT to non residents and it begs to question why this isn’t reciprocal. If i cant navigate a way round this, it appears the only logical choice for me is to sell, i can only bear WHT of 15% and not more.
Someone can correct me here hopefully if I have misunderstood, but it’s the ETF that pays they WHT, generally based on where they are registered, and can pay at the highest rate depending on the composition of investors in the fund.
Either way lots of countries charge a form of tax to local and foreign investors, UK has stamp duty on shares as another form of a trading tax.
They all need considered as part of they total return potential you are looking to achieve.