What is the tax on U.S. stock dividends?What should I pay attention to in taxing U.S. stock dividends?In recent years, more and more people have chosen to invest in U.S. stocks, just because the U.S. stock market is larger, with more choices, and fewer restrictions. The most important thing is that investors focus on higher rates of return.But many investors have once had a question, that is,"If you receive dividends, you have to deduct 30% tax first. Is this still cost-effective?」。

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What do you think about the tax on U.S. stock dividends?

First, let's look at the advantages of Taiwanese investing in U.S. stocks and Americans investing in U.S. stocks.

If you are an American and have a U.S. green card or residence permit, you are a U.S. tax citizen and need to pay taxes. As a U.S. citizen, the taxes you need to pay are:

1. Dividend tax (0%-20%)

2. Capital gains tax (10%-37%)

However, if Taiwanese invest in U.S. stocks, they need to fill out the W-8 BEN Form, which is used to prove the investor's tax status.As a foreigner investing in U.S. stocks, you only need to withhold 30% dividend tax and no additional declaration is required. In the future, you will receive after-tax dividends, while the capital gains from buying and selling stocks will not be subject to tax deduction.Therefore, compared with Americans who need to pay a maximum tax of nearly 60% when investing in U.S. stocks, Taiwanese who only need a 30% tax when investing in U.S. stocks and trade stocks without handling fees, which is really much cost-effective!

It is worth noting that according to the Taiwan Income Tax Law, income from overseas securities transactions or dividends received are all overseas income. If your overseas income exceeds NT$1 million a year, you need to report to the IRS.Next, let's see whether overseas income plus basic income exceeds NT$7.5 million, and then compare the general income tax with the basic tax amount to decide whether the basic tax amount is required, as follows:

You can also understand through the following cases:

How to receive dividends on U.S. stocks?

The interest-distribution method for most U.S. stocks is cash dividends, and cash is paid directly.Here are four very important dividend days:

1. Announcement date

The company's board of directors will announce how much cash dividends will be paid this quarter, and will also announce the ex-dividend date and payment date.

2. Ex-dividend date

Please pay attention!If you buy the stock on or after the ex-dividend date, you will not be able to receive dividends.If you hold the stock before the ex-dividend date and sell the stock on or after the ex-dividend date, you can receive dividends.

3. Registration Date

The registration date refers to the day after the ex-dividend date when the company registers the register of shareholders, which will generally be 2 days after the ex-dividend date.Investors must buy shares of the company before the ex-dividend date before they can be registered on the register.

4. Payment date

The day when shareholders in the current register receive dividends according to their share.

Information related to U.S. stock distribution can also be searched on the Stock APP. Enter the stock name/code number you want to inquire in the search box, drop down and click the Financial Statement button on the page, select the quarterly report or annual report range, and select the U.S. Stock Data button to see the distribution information, the Chinese interface is very investors.

Take Apple (code name AAPL) as an example:

Detailed analysis of dividend withholding tax on U.S. stocks

Since dividends on U.S. stocks will be subject to a 30% tax deduction first, this may be one of the reasons why many investors are afraid of U.S. stocks. Compared with investing in the Taiwan stock market, there is also a certificate tax of 0.3%, supplementary premiums of 2%, and dividends offset income tax by half, etc., it is indeed a pity to withhold 30% of U.S. stock dividends, but there is still the only formula for investors to create long-term profits:

Total return on investment = dividend income + capital gains

Over a 30-to 40-year investment journey, cumulative total return over time is often insignificant compared to a 30% dividend deduction.

Therefore, investors regard a 30% withholding tax as a small part of the cost of investing in U.S. stocks. When investors obtain a high total return on investment through long-term operations, a 30% dividend tax deduction is definitely not a shortcoming. Passive income from continuous growth is the investment method we create a golden rooster.

In the U.S. stock market, you can find many stocks whose dividends have grown continuously for more than 10 years, or even more than 50 years.For example, 3M (U.S. stock code MMM) has had dividends growing for 63 consecutive years.

Dividend growth companies are characterized by steady growth. They don't need to invest in growth stocks. They can only pray that the company will make money.A company that continues to pay dividends has clearly told you that the company has been making money and making profits, not to mention that the dividends continue to grow, which means that the company is making more and more profits.This investment method can allow you to earn both dividends and stock price.While earning more and more passive income, the stock price also rose.

As can be seen from the figure below, the various deductions fees for financial products in the market are amazing. Assuming an average interest rate of 3% for the overall portfolio, a withholding tax of 30% is 0.9%, which is far lower than that of 1.5% management and manager fees for domestic and overseas funds. In addition, there are also bank custody fees of 0.5%, subscription fees of 2%, redemption fees, etc. As well as transaction fees incurred by fund companies 'frequent transactions, as well as transaction taxes, which are then fed back into the deduction fees.

Therefore, investors can also use the dividend reinvestment services of U.S. securities firms and use cash dividends to continue investing in individual stocks. The first advantage is to avoid a 30% tax deduction on the U.S. stock market. The second advantage is to use annual dividends to reinvest to generate cash dividends, and compound interest will be rolled over to create more investment value.

Does the 30% withholding tax on U.S. stock dividends have a big impact?

The total return on investment is composed of dividends, dividend growth, and price-to-earnings ratio expansion, which translates into the following formula:

Total return on investment = dividends + capital gains (dividend growth and price-to-earnings ratio expansion)

Investors will first withhold 30% of the tax on dividends received by them, so you can regard the withholding tax as investment costs or reinvest services as mentioned above to avoid dividends being deducted and earn more profits.For example, if you invest US$10,000, you will have a yield of 2%, and an annualized dividend growth rate of 8%. After 30 years, you will obtain:

Dividend 24,469 yuan + capital gain 100,627 yuan = total remuneration 125,096 yuan

In addition, from the perspective of long-term total return, U.S. stocks have higher annualized returns, lower fluctuations, and even a higher reward risk ratio than Taiwan stocks. Therefore, the 30% tax withheld on U.S. stock dividends does not actually affect the total return. Big impact!

Summary of U.S. Stock Dividend Taxation

Since U.S. stocks are distributed quarterly in accordance with international practice and dividends are paid out using cash dividends, after understanding the dividend distribution date of the U.S. stocks you purchase and the tax-free advantages of Taiwanese investing in overseas commodities, you can then understand the expenses related to U.S. stock dividends and financial products in the market, and then use the dividend reinvestment services provided by U.S. securities firms to use the dividend distribution rules and dividend reinvestment advantages of U.S. stocks to help yourself create more long-term passive income. This will reduce the 30% withholding tax to a certain extent!

FAQs on U.S. Stock Dividend Taxation

Q1. Are U.S. stock capital gains taxable?

The spread (capital gains) earned by Taiwanese purchasing U.S. stocks is not subject to tax, but a 30% tax will be withheld first in interest distribution accounts.

Q2. What are the important days for U.S. stock dividends?

Important days for dividends on U.S. stocks include announcement day, ex-dividend day, registration day, and payment day. Through these specific days, you can understand the dividend status and receive dividends.

Q3. What is the W-8 BEN form that Taiwanese people fill out when investing in U.S. stocks?

Form W-8 BEN exists to prove the tax status of investors.This allows you to invest in U.S. stocks as a foreigner, and the capital gains on buying and selling stocks will not be deducted.