Withholding tax on foreign dividends

Steve182

soulsaver said:

What, if any, is the effect on UK tax, if otherwise due on a retained tax foreign dividend payment (so greater than £2k outside a wrapper)? 

If I understand the question correctly, I don't believe withholding tax on dividends by any foreign state are considered by HMRC 

underground99

Steve182 said:

soulsaver said:

What, if any, is the effect on UK tax, if otherwise due on a retained tax foreign dividend payment (so greater than £2k outside a wrapper)? 

If I understand the question correctly, I don't believe withholding tax on dividends by any foreign state are considered by HMRC 

Yes they are; you have the choice of either declaring the foreign dividends net of foreign withholding tax (so that you only pay UK tax on the net receipt); or alternatively declaring gross amount and taking a tax credit equivalent to the foreign tax suffered against the UK tax due on the gross amount of the dividend income. One method may be better than the other depending on personal circumstances.

hoc

Unfortunately UK investment institutions aren't interested in processing WHT forms for anything other than the W8-BEN for USA. France, Germany, Switzerland and most other major ones do have forms to reduce to 15% or 0% in tax wrapper like SIPP but UK institutions refuse to process them so in practice treaty rate agreements are meaningless. The admin is not that complex and it could be really easy money for both sides but no!

Thrugelmir

hoc said:

Unfortunately UK investment institutions aren't interested in processing WHT forms for anything other than the W8-BEN for USA. France, Germany, Switzerland and most other major ones do have forms to reduce to 15% or 0% in tax wrapper like SIPP but UK institutions refuse to process them so in practice treaty rate agreements are meaningless. The admin is not that complex and it could be really easy money for both sides but no!

Majority of investments are held in nominee form. European countries require evidence of ownership. Admin, in employing people, is expensive. Generally disportionate to the amount being recovered. One cannot expect to pay minimal fees to trade then receive a silver service. 

hoc

Thrugelmir said:

hoc said:

Unfortunately UK investment institutions aren't interested in processing WHT forms for anything other than the W8-BEN for USA. France, Germany, Switzerland and most other major ones do have forms to reduce to 15% or 0% in tax wrapper like SIPP but UK institutions refuse to process them so in practice treaty rate agreements are meaningless. The admin is not that complex and it could be really easy money for both sides but no!

Majority of investments are held in nominee form. European countries require evidence of ownership. Admin, in employing people, is expensive. Generally disportionate to the amount being recovered. One cannot expect to pay minimal fees to trade then receive a silver service. 

Where are you pulling this "expectation to pay minimal fees and receive silver service" from exactly? Because it is not from my text...

underground99

hoc said:

Thrugelmir said:

hoc said:

Unfortunately UK investment institutions aren't interested in processing WHT forms for anything other than the W8-BEN for USA. France, Germany, Switzerland and most other major ones do have forms to reduce to 15% or 0% in tax wrapper like SIPP but UK institutions refuse to process them so in practice treaty rate agreements are meaningless. The admin is not that complex and it could be really easy money for both sides but no!

Majority of investments are held in nominee form. European countries require evidence of ownership. Admin, in employing people, is expensive. Generally disportionate to the amount being recovered. One cannot expect to pay minimal fees to trade then receive a silver service. 

Where are you pulling this "expectation to pay minimal fees and receive silver service" from exactly? Because it is not from my text...

Generically, customers want something for nothing. The investment platforms don't offer the service because most of their customers wouldn't want to pay for it at commercial rates to reflect the work done.

You note that it would be really easy money for 'both sides'. Presumably by that you mean you're happy to share the tax saving with the broker to make them a profit on top of their costs of doing the admin.

Say I have 100 shares in a French company worth £1000 and the company yields a 1.8% annual dividend, split as £8 and £10 for interim and final dividend respectively. If we assume withholding tax is 30% or lower treaty rate 15%....

When the £8 dividend is paid, the company withholds £2.40 French withholding tax as standard but the treaty rate for UK residents is only £1.20. So there would be £1.20 savings available by applying the lower treaty rate at time of the company's payment, if only the company had received in advance the certification of status stamped by HMRC to confirm that you are a bonafide resident of the UK for the current tax year.

My investment platform holds shares as nominee for lots of customers at once. So instead of just holding 100 shares of that company for you or me, it may have 15000 shares split between 10 customers, or maybe 200 customers, depending on the mix of customers owning however many shares each. That number of shareholders and their total aggregate holdings - and the proportion of them who have provided a stamped HMRC document confirming their status which could be forwarded to the French company - is something that would change on a daily basis over the course of the year.

So when the shares go ex dividend the platform would need to provide the company with the details of all the underlying holdings and tax claims (e.g. within the 15000 shares held, 100 belong to Mr A who has attached a stamped HMRC certificate of residence, while 217 shares are held by Mr B who is Guernsey resident and can't use the treaty, and 325 shares are held for a joint account Mr&Mrs C where one of them is a UK resident and the other is not so they can only get treaty relief on half their holding, and 572 shares are held by Mrs D who provided a certificate while 4378 shares are held by Mr E who says he provided a certificate but it got lost in the post. And so on. Contingent on all the documentation being in place and certified copies of the certificates being made available to the paying company, there would be some blended average rate of withholding tax, between 15-30%.  The blended rate would change continually because today my 100 shares is 0.67% of the broker's total 15000 shares  but by the next dividend for that company I might have 120 shares out of the broker's 12000 which is 1%, changing the overall rate.

So the French company paying the dividend can't rely on the fact that the blended withholding rate for broker ABCD is always going to be (e.g.) 21%, he will need new paperwork every event, and it will have to be up to date for the mix of holders as of ex-dividend date, and communicated to him in good time before the payment date, with supporting documentation.

This is a huge ball-ache for the broker to save me my £1.20 of withholding tax. Sure, if I have 10x as many shares (£10000 invested instead of £1000) my interim dividend is £80 instead of £8 and the tax left on the table is £12 instead of £1.20. If there's £12 up for grabs, I could let the broker provide the service for £10, which assuming that is enough to give him a small profit and I get my £2 profit too, will be 'easy money for both sides'

But one could imagine that many of the customers with only £1000 invested in Electricite de France would not want to pay the £10 fee to save the £1.20 tax, so when the platform is setting the fee scales it can only divide the total cost of doing the work by the number of customers who it thinks would want to pay towards the work.

And although some customers like a menu of fixed fee charges for each transaction or corporate action, others prefer a flat annual £ or percentage per year. So if they build it in to the overall costs of the platform service (building robust systems and controls to handle it), it puts the price up for everyone, including the vast majority of people who use the platform but don't directly hold a meaningful quantity of French shares.

While the service of coordinating and processing a withholding tax claim on a nominee basis for a load of customers sounds like simple admin, it is a lot harder than simply not offering it at all, so not offering it at all is the default position.

As you say, you didn't explicitly say you wanted to get silver service for minimal trade charges. Perhaps you are very willing to pay silver service pricing for the silver service add-on work, because you have a meaningful amount of foreign direct holdings, and don't mind sharing the tax saving with the broker through extra charges to allow them to make money from the work they put their resources into doing.

But with the 'race to the bottom' in pricing, one can imagine the jaded view of the industry is that customers generally want something for nothing - they don't want to offer something their rivals don't unless there will be a big customer uptake and the chance to grab more customers who transfer their business to make use of the new service. 

gingercordial

I also suffer French withholding tax on shares - in my case because I work for a French-headquartered company with an employee share scheme.  It is a tricky one.

The default WHT rate to foreign companies or unknown foreign recipients is 28% for 2020 and 26.5% for 2021.  If the paying entity can be convinced that you are a foreign-resident person (not a company) this should drop to 12.8% for both years.  There is no longer any benefit to the UK-France treaty specifically, as that allows a reduction to 15%, so 12.8% is already lower for all foreigners not just British ones.

In theory, you could achieve this by:
1. Download and complete Form 5000 from the French tax authorities and complete all three sets of pages including the French ones.  It is linked on this page: https://uk.ambafrance.org/Income-Tax-Inheritance-Tax-Wealth-Tax
2. If at the same time you want to reclaim WHT on older years, also complete Form 5001 from the same link, again in French and English.  If you just want to do this going forwards, you don't have to do this one ("simplified procedure").
3. Then send all of the above to HMRC for stamping.  You are supposed to include in a letter the information listed here: https://www.gov.uk/hmrc-internal-manuals/international-manual/intm162020
4. Once you have all that back from HMRC with a stamp, send it to the company that pays your dividends.  They should apply the lower rate going forwards, and repay the excess WHT for previous years if you did Form 5001.

Steps 1-3 are just paperwork and HMRC are usually helpful.  Step 4 is the problem and I have never managed to resolve this.  The first seems to be as others have said, no one is particularly interested in processing this kind of thing or giving a straight answer on it, as it isn't as common as the US versions.  The second is that depending on the holding structure, the French company may see the dividend payment as entirely going to a "UK company" (the nominee, platform or whatever) in the first instance, not to the individuals holding shares, so that is that, 28%/26.5% WHT applies no matter what forms you might have.  This is the case with me - our parent company pays dividends for the share scheme to Equiniti to do the admin of passing on to us UK employees, so they deem it a payment to Equiniti the company and the higher WHT rate applies.  (Equiniti never had any idea what I was talking about, by the way.)

I have given up on getting any better result on this and just accept the WHT loss these days.  I invest in French shares only via this route because it is an approved employee share scheme with PAYE and NI savings and matching free shares, so dividends are not the goal for me. It's annoying nevertheless.

vikkiew

Avoiding or reclaiming is difficult. I would say impossible unless you work with a specialist not the usual platforms people talk about here. However offsetting overpaid against due in Self Assessment is an option in this case and does not need cooperation from platform.

underground99

vikkiew said:

. However offsetting overpaid against due in Self Assessment is an option in this case and does not need cooperation from platform.

No it isn't, for a couple of reasons.

While you can take a deduction on whatever UK tax bill was due on the same dividend income, for the foreign withholding tax suffered, you can only take the deduction for the withholding tax that was actually due under the treaty. 

If you have paid way more tax than was actually due under the tax treaty (for example, you paid 30% or 28% etc because you didn't get any help from your platform to only pay the 15% or less that was due), you can't tell the tax man that you want to offset the whole 30% or 28% against the (e.g.) 32.5% that you owe as a higher rate taxpayer. Because the treaty says you didn't need to pay that full 30%, and the UK tax man is not going to pay you out for your laziness.

As an aside, 'in this case' the OP says he doesn't have more than £2000 dividends a year, so he won't have any UK tax bill on his French dividends, because the first £2000 of dividends are only taxed at 0% by HMRC. So, "offsetting the amount overpaid against what is due through self assessment" is not going to help him, because there is no amount of UK tax due on these French dividends at all.

In other words, if you owe £0 of UK tax on €100 of French dividend income, it doesn't matter if you paid €15 or €30 of French withholding tax, your UK tax bill isn't going to reduce below £0.  OP is not going to save any UK tax as a consequence of paying the €15 or €30.  That's why he wants to pay as little withholding tax as possible.

Thrugelmir

hoc said:

Thrugelmir said:

hoc said:

Unfortunately UK investment institutions aren't interested in processing WHT forms for anything other than the W8-BEN for USA. France, Germany, Switzerland and most other major ones do have forms to reduce to 15% or 0% in tax wrapper like SIPP but UK institutions refuse to process them so in practice treaty rate agreements are meaningless. The admin is not that complex and it could be really easy money for both sides but no!

Majority of investments are held in nominee form. European countries require evidence of ownership. Admin, in employing people, is expensive. Generally disportionate to the amount being recovered. One cannot expect to pay minimal fees to trade then receive a silver service. 

Where are you pulling this "expectation to pay minimal fees and receive silver service" from exactly? Because it is not from my text...

As an investor, I'd assume that you understand the business model of your chosen platform.