U.S. and Canada Withholding Tax
When an organisation, such as a Share registrar, or in the terms of the US and Canadian stock market a Transfer Agent, pays income to an individual, the organisation must withhold a percentage of that income for tax. This is known as a Withholding Tax. It is then that individuals responsibility to claim back the tax. Often the individuals are unaware of that. The Transfer agent will not voluntarily release that money to you.
For U.S. Tax Withholding on payments to non-U.S. citizens, we provide a service to help you claim tax withheld incorrectly. Make contact with us for further advice.
Most types of U.S. source income paid to a foreign person are subject to a withholding tax. The typical rate is 30%. However, a reduced rate or exemption may apply if stipulated in the applicable tax treaty. Any reduction or exemption is between the USA and the relevant country.
UK Withholding Tax
Here in the UK as long as the correct form, W8 BEN, is completed and registered on the account with the Transfer agent, then only 15% is withheld on any share dividends they pay out.
Find more information with regards to tax treaty on the US/UK tax treaty information page.
If the W8 BEN is completed incorrectly or the incorrect W8BEN is filed, or a W8 BEN is not registered at all with the transfer agent over a long period of time the amount of tax incorrectly withheld can accumulate to a large sum. This money can eventually be claimed back from the IRS (Inland Revenue Service in the US), but the procedure can take several months or even years. It can be a very expensive process to correspond back and forth with the IRS.