Is there a list of fixed income ETFs without 30% withholding taxes for non-US citizens?

Discussion in 'ETFs' started by Daal, Sep 21, 2018.

  1. Daal


    I know that some ETFs use some legal methods to avoid that tax for non-US holders. I believe MINT doesn't have that tax, are there new others?
  2. For the majority of countries the withholding is significantly lower than 30% due to double taxation treaties.
  3. Robert Morse

    Robert Morse Sponsor

    It has nothing to do with what the symbol is.

    Withholding On Payments of U.S. Source Income to Foreign Persons IRC 1441 to 1443 (Form 1042)
    Generally, a foreign person is subject to U.S. tax on its U.S. source income. Most types of U.S. source income received by a foreign person are subject to U.S. tax of 30%. A reduced rate, including exemption, may apply if an Internal Revenue Code Section provides for a lower rate, or there is a tax treaty between the foreign person's country of residence and the United States. The tax is generally withheld (NRA withholding) from the payment made to the foreign person.

    The term NRA withholding is used in this area descriptively to refer to withholding required under sections 1441, 1442, and 1443 of the Internal Revenue Code. Generally, NRA withholding describes the withholding regime that requires 30% withholding on a payment of U.S. source income and the filing of Form 1042 and related Form 1042-S. Payments to all foreign persons, including nonresident alien individuals, foreign entities and governments, may be subject to NRA withholding

    In referring to NRA withholding in this area, it does not include withholding done under section 1445 of the Internal Revenue Code, dealing with Withholding of Tax on Dispositions of U.S. Real Property Interests (FIRPTA), or under section 1446 of the Internal Revenue Code, dealing with Withholding Tax on Foreign Partners’ Share of Effectively Connected Income (Partnership Withholding).
  4. Daal


    Forget double taxation treaties, the country in question doesnt have it.
    I'm looking for this

    "The American Jobs Creation Act of 2004 allowed ETFs having regulated investment company status to designate amounts of QII and STCG as exempt from Nonresident Alien Withholding Tax (“NRA Withholding Tax”) when paid to non-U.S. shareholders with appropriate tax documentation. The exemption expired with the PIMCO ETFs 7/7/15 payment date, but has since been extended permanently from that date with the “Protecting Americans from Tax Hikes Act of 2015” signed into law on12/18/15."

    I'm looking for short-term UST bond etfs under that exemption
    Last edited: Sep 21, 2018
  6. Daal


  7. luisHK


    Thanks Obélix, any idea whether IB would credit one's account of the non withheld distribution, or would withhold from it the same way as all regular based US based dividend payments, leaving the trader to himself to try and claim it back from the IRS ?
    I remember looking for distribution with a reduced withholding rate a few years back but always got withheld at the standard rate by IB. Not sure I bought the proper ETFs though.
  8. Daal


    I plan to test this a bit by buying certain ETFs. It looks like the ETF companies are taking full advantage of this loophole, the question now is whether the brokers are up to speed on this. IB is usually good at this so we will see
    luisHK likes this.
  9. luisHK


    Curious to read how it works out, thanks in advance Daal for posting an update (I still need to apply for professional trader status with IB, so can't buy US ETFs right now. No rush as i don't need ETFs through IB most of the time but if it's possible to invest in low cost ETFs without getting hit by withholding tax, I might change my mind).
    Last edited: Sep 23, 2018
  10. WHT for Pimco MINT for 2017 was 5,33%.
    #10     Sep 23, 2018