USA & UK has tax treaty having a dividend withholding tax rate of 15%.
(I am a USA-citizen investing in the UK - bought 5000 shares).
Investment in the UK pays dividend of ￡0.40 per share.
Exchange rate = $1.61 / ￡
My pre-tax net US dollar dividends is equal to:
A) (5000 x ￡0.40 x $1.61 ) = $3220
B) (5000 x ￡0.40 x $1.61 ) x (0.85) = $2737
Schweser seem to go with answer B.
Are they correct or wrong?
THANKS!作者: wizofoz 时间: 2011-7-11 20:02
due to the treaty...
In UK - it is taxed to the rate of 15%.
when you come to US -> the remaining 85% is all that is taxed. Otherwise - it would be double taxed. The treaty is doing just that.
overall - the dividend is taxed to the 100% extent only 1 time.
CP作者: giorgio10 时间: 2011-7-11 20:02
USA tax would be at 28%.
so the 15% would be a tax credit....
based on your reply above, are you saying that it should be ans A?作者: Analyze_This 时间: 2011-7-11 20:02
if we are only interested in a pre-tax dividend...
shuoldnt we forget about the 15% tax anyway?作者: smuggycfa 时间: 2011-7-11 20:02
15% tax is charged on UK on the full amount of dividend.
when the dividend arrives on the US side of the fence - you are allowed to remove the 15% of the dividend and then charge the 28% US tax on the remaining 85% of the dividend.
if you charged the US tax rate on the full dividend - the benefeciary is being dinged twice with the tax. Tax treaty allows him to be taxed only once on the entire 100% of dividend amount.
No - I meant Schweser's answer was right.
CP作者: economicz 时间: 2011-7-11 20:02
O hyeahhh thats right...
we have to be taxed by 15% in the UK anyways....
THanks作者: ayodayo 时间: 2011-7-11 20:02
Tks idreesz.
My concern is: what happens if investment nation div tax is lower than your nation dividend tax (the first case)?. Surely, there is a tax treaty.
I agree with you on the second case wherein investment nation div tax is higher than your nation div tax作者: FinancialAnaly 时间: 2011-7-11 20:02
NTP Wrote:
-------------------------------------------------------
> Tks idreesz.
> My concern is: what happens if investment nation
> div tax is lower than your nation dividend tax
> (the first case)?. Surely, there is a tax treaty.
>
>
> I agree with you on the second case wherein
> investment nation div tax is higher than your
> nation div tax
You answered it correctly. You will pay only 4% to your nation.作者: Pegasus2008 时间: 2011-7-11 20:02
look at this question
US investor invest in UK - 100 shares, receives dividend of 2 per share, witholding tax rate in UK is 15%, exchange rate is $1.175/pound, USA tax rate 30%
how much does the US investor declare at home?作者: 19831985 时间: 2011-7-11 20:02
This is my understanding.
100 x 2 = Pound 200
Tax rate in UK = 0.15 x 200 = 30 pound
When converted to US = 1.175 x 30 = 35.25$
Income transferred to US = 200 x 1.175 = $235
Taxes on $235 = 0.30 x 235 = $70.5
But $35.25 was already paid in UK
So $35.25 will be needed to pay in US and the rest of $35.25 will be given back as tax credit.作者: SFoyil 时间: 2011-7-11 20:02
Agree with idreesz作者: RepoToronto 时间: 2011-7-11 20:02
thats how i understand it as well. i think declaration is the gross translated dividend and then you take tax credit on whats has already been withheld later
