Are you aware of the tax implications of international investing? When you invest in foreign securities, even those listed on U.S. exchanges, your investment is subject to foreign tax withholding. Foreign tax withholding is simply money that your broker takes out of your dividend income, capital gain, or interest income that is paid to the central government of the company you own. Withholding rates vary by country and source of income. Some countries require withholding on dividends, interest, and capital gains, and others only withhold income on dividends and interest. Why is this important for you as an investor? Foreign tax withholding can be used to offset income on your U.S. income taxes, but only if you hold these investments in a taxable account. If you buy foreign securities in a tax-deferred account, such as an IRA, your investment is still subject to foreign tax withholding, but the IRS will not allow you to deduct foreign taxes paid for U.S. income tax purposes. So then, at a minimum you want to be aware of the withholding rates in all of the foreign markets you invest in. This is especially true if you are purchasing foreign securities in a tax-deferred account. The table below lists the withholding rates on dividends, interest, and capital gains for the world’s 15 largest foreign stock markets.
|World’s Largest Non-US Equity Markets|
|Source: Bloomberg & IRS|
International tax rules and implications become very complicated very quickly. Please consult with your tax advisor to determine how foreign tax withholding applies to your individual circumstances.
If you are interested in the specific international securities we advise for investment, check out our premium strategy report, Richard C. Young’s Intelligence Report.
Jeremy Jones, CFA is the Director of Research at Young Research & Publishing and the Chief Investment Officer at Richard C. Young & Co., Ltd., Investment Advisors.