The Importance of correctly tax certifying your account
You may not realise but if you own North American shares you are required to provide a W8 form to the transfer agent that maintains the share register of the company for them to correctly tax certify your account.
Should a correctly completed W8 BEN not be submitted to the Transfer agent then your dividend payments and any sale proceeds will have the full rate of 28% tax deducted by the Transfer agent rather than the 15% reduced rate on dividends and 0% on sale proceeds, which is applicable due to the tax treaty between the United States and the United Kingdom.
W8 forms also expire normally after three years from the date of the form so it’s also important to ensure that the form you have lodged with the Transfer agent is current and up to date, the IRS also tend to change the rules on what needs to be completed on the W8 form which can cause confusion and result in the account not being correctly tax certified, you can normally tax certify your account by registering for online access through the Transfer agents’ website.
Should you own a large number of shares or sell a significant shareholding the amount of Federal Withholding Tax withheld can be in the thousands from built dividends over a number of years.
Should your account not be correctly tax certified and you pay Federal Withholding Tax this can be claimed back from the IRS directly, however it’s a long painful process and can take up to three years to be achieved, this in its self is a difficult procedure with help and guidelines difficult to come across, and you can be holding on the telephone to the IRS for anything from 5-90 minutes, another important thing to consider Is that the IRS can fine large sums of money (thousands of dollars) for incorrectly lodged tax returns, so it is essential that all forms are completed and lodged correctly at the first attempt.
We have recently obtained a tax refund of $60k plus from a sale that took place when A US Transfer agent incorrectly withheld 28% of the sale proceeds at the end of the US tax year and it was too late to file a claim back through the Transfer agent as the new tax year had begun and the funds were transferred to the IRS to be held.
If a sale request is sent to a transfer agent without a correctly completed W8 form then they will still process the sale and withhold the Federal withholding tax, they will not reject the sale they will process it and reject the W8 whilst withholding the tax, you then need to act very swiftly to ensure that the funds can be claimed back through the Transfer agent rather than then being passed to the IRS, there is normally a 30 day window of opportunity from the sale date (timeframes vary), however it can take up to two weeks for the sale proceeds to arrive in the UK if paid by cheque so nearly half of the time has passed before most shareholders realise the tax has been incorrectly withheld.