US Withholding Tax

[UnclePhilip]

My online broker requires me to fill in a W-8BEN withholding Tax form before I can buy AMZN (Amazon) in my UK ISA.

I get confused by tax at the best of times, but when it gets international my head spins.

Can someone explain this to me, please?

Thanks....

[SalvorHardin]

My online broker requires me to fill in a W-8BEN withholding Tax form before I can buy AMZN (Amazon) in my UK ISA.

I get confused by tax at the best of times, but when it gets international my head spins.

Can someone explain this to me, please?

If you haven't completed a W-8BEN form they have to deduct 30% withholding tax from any dividends.

If you complete a W-8BEN form the deduction falls to 15%.

Most brokers won't let you buy American shares without having completed a W-8BEN because their systems are set up to process the 15% deduction.

You do not have to complete an American tax return (unless you normally do) just because you own American shares.

You can offset the withholding tax against your UK tax liability. But not if the shares are held in an ISA because as far as the UK income tax system is concerned investments in ISAs don't exist.

[robbelg]

The W-8BEN form is VERY simple

Rob

[Lootman]

If you haven't completed a W-8BEN form they have to deduct 30% withholding tax from any dividends.

That's true although in this case Amazon doesn't pay a dividend so there would be no disadvantage to not completing the form. So the broker must just require it regardless. My broker is happy for me to not complete a W-8BEN.

[monabri]

If you google W-8BEN and then click on "IMAGES" there are completed examples.

[gryffron]

If you're holding shares in your own right, you can choose whether the fill in the form or not.

However, most nominee accounts from online discount brokers are simply setup to have everybody the same, therefore they insist all their clients fill in the form. Regardless of whether they have any dividends or not. It simplifies their admin.

Yes, the W8Ben is simple, but you do have to get it right. The US authorities are very picky. Do check the online examples, and be careful. Some answers go in the same box as the question, some in the box next to it. And they won't allow acronyms so UK is not acceptable. But do it, it's not hard.

Gryff

[Lootman]

the W8Ben is simple, but you do have to get it right. The US authorities are very picky. Do check the online examples, and be careful. Some answers go in the same box as the question, some in the box next to it. And they won't allow acronyms so UK is not acceptable.

Do we know that the W8 forms are actually sent to the US for review? Rather than just stored here by the broker in case there is a query?

I ask because - and it was a different withholding form - a W4 - that I completed years ago and only much later learned that it was never submitted to the authority but merely kept on file, just in case.

[UnclePhilip]

Thanks for all replies. I suppose my initial puzzlement was the realization that dividend income in an ISA would be taxed. That was new to me.

So, turning to Amazon, as they anyway don't pay dividends, and presumably capital gains won't suffer any withholding (?), are there any tax issues with buying shares in my UK ISA?

There'll presumably be the usual exchange rate risk involved. But I'm so convinced that Amazon are going to rule the world, I thought half of this year's ISA allowance could be put on them, without being reckless in my old age....

[SalvorHardin]

Thanks for all replies. I suppose my initial puzzlement was the realization that dividend income in an ISA would be taxed. That was new to me.

So, turning to Amazon, as they anyway don't pay dividends, and presumably capital gains won't suffer any withholding (?), are there any tax issues with buying shares in my UK ISA?

Foreign governments ignore ISAs, so they will deduct withholding tax on dividends. In theory some governments will allow you to reclaim this withholding tax (America doesn't). Germany claims to do so but from what I've heard doing so takes ages, requires that you be pretty good at speaking German and may require you to hire an agent which will almost certainly cost more than the tax deducted.

Capital gains are not taxed by foreign governments as long as you're not a taxpayer in that country. The one exception I know of is when a company spins off a business as a limited liability partnership. The Americans (and I believe the Canadians) treat these spinoffs as dividends and levy withholding tax on the capital value at date of spinoff (I've had a couple of these from Brookfield Asset Management).

No tax issues with buying non-dividend paying foreign shares in an ISA (asides from the one in the above paragraph).