Under US domestic tax laws, a foreign person generally is subject to 30% US tax on the gross amount of certain US-source income. All persons ('withholding agents') making US-source fixed, determinable, annual, or periodical (FDAP) payments to foreign persons generally must report and withhold 30% of the gross US-source FDAP payments, such as dividends, interest, royalties, etc. Withholding agents are permitted to withhold at a lower rate if the beneficial owner properly certifies their eligibility for a lower rate either based on operation of the US tax code or based on a tax treaty. Information reporting of the US-source payments is always required even if no withholding applies.
Withholding also may be required on the purchase from a non-US person of an interest in US real estate (which may, for this purpose, include shares in a US company holding primarily US real estate/real property interests) or a partnership interest if the partnership is or has been engaged in the conduct of a US trade or business.
The United States has entered into various bilateral income tax treaties in order to avoid double taxation and to prevent tax evasion. The table below summarises certain benefits provided under these treaties. Note that the information in this table is subject to change as treaties are updated periodically (e.g. through protocol or renegotiation).
|Recipient||WHT (%) a, b|
|Dividends paid by US corporations in general (1)||Dividends qualifying for direct dividend rate (1, 2)||Interest paid by US obligors in general||Royalties c|
|Australia||15 (18)||5 (18)||10 (4, 5, 13, 17)||NA/5/5/5/5|
|Austria||15 (8)||5 (8)||0 (5, 13, 24)||NA/0/0/10/0|
|Bangladesh||15 (18)||10 (18)||10 (5, 10, 13)||NA/10/10/10/10|
|Barbados||15 (8)||5 (8)||5||NA/5/5/5/5|
|Belgium||15 (18, 22)||5 (18, 20, 22)||0 (5, 13, 24)||NA/0/0/0/0|
|Bulgaria||10 (18, 22)||5 (18, 22)||5 (5, 13, 17, 24)||NA/5/5/5/5|
|Canada||15 (18)||5 (18)||0 (5, 13)||10/0/0/10/0|
|China, People's Republic of||10||10||10||7/10/10/10/10|
|Commonwealth of Independent States (CIS) (7)||30||30||0 (6)||0/0/0/0/0|
|Czech Republic||15 (8)||5 (8)||0 (13)||10/10/10/0/0|
|Denmark||15 (18, 22)||5 (18, 20, 22)||0 (5, 13, 24)||NA/0/0/0/0|
|Egypt||15 (3)||5 (3)||15 (3)||NA/30/15/NA/15|
|Estonia||15 (8)||5 (8)||10 (5, 13)||5/10/10/10/10|
|Finland||15 (18, 22)||5 (18, 20, 22)||0 (5, 13, 24)||NA/0/0/0/0|
|France||15 (18)||5 (18, 20)||0 (4, 5, 13, 24)||NA/0/0/0/0|
|Germany||15 (18, 22)||5 (18, 20, 22)||0 (5, 13, 24)||NA/0/0/0/0|
|Iceland||15 (18, 22)||5 (18, 22, 24)||0 (5, 13, 24)||NA/5/0/5/0|
|India||25 (8)||15 (8)||15 (11)||10/15/15/15/15|
|Ireland||15 (18)||5 (18, 24)||0 (5, 13)||NA/0/0/0/0|
|Israel||25 (8)||12.5 (8)||17.5 (11, 15)||NA/15/15/10/10|
|Italy||15 (18)||5 (18)||10 (13, 19)||5/8/8/8/0|
|Japan||10 (18, 21, 22)||5 (18, 20, 21, 22)||0 (5, 13, 21)||NA/0/0/0/0|
|Kazakhstan||15 (14)||5 (14)||10 (13)||10/10/10/10/10|
|Latvia||15 (8)||5 (8)||10 (5, 13)||5/10/10/10/10|
|Lithuania||15 (8)||5 (8)||10 (5, 13)||5/10/10/10/10|
|Luxembourg||15 (8)||5 (8)||0 (3, 5, 13)||NA/0/0/0/0|
|Malta||15 (24)||5 (24)||10 (13)||NA/10/10/10/10|
|Mexico||10 (18, 22)||5 (18, 20, 22)||15 (13, 16, 22)||10/10/10/10/10|
|Netherlands||15||5 (20, 23)||0 (24)||NA/0/0/0/0|
|New Zealand||15 (18)||5 (18, 20)||10 (5, 13, 17, 24)||NA/5/5/5/5|
|Portugal||15 (8)||5 (8)||10 (4, 13)||10/10/10/10/10|
|Russia||10 (14)||5 (14)||0 (13)||NA/0/0/0/0|
|Slovak Republic||15 (8)||5 (8)||0 (13)||10/10/10/0/0|
|Slovenia||15 (18)||5 (18)||5 (13)||NA/5/5/5/5|
|South Africa||15 (8)||5 (8)||0 (5, 13)||NA/0/0/0/0|
|Spain||15 (18, 22)||5 (18, 20, 22, 24)||0 (5, 13, 24)||NA/0/0/0/0 (9, 24)|
|Sri Lanka||15 (23)||15 (23)||10 (5, 13)||5/10/10/10/10|
|Sweden||15 (18, 20)||5 (18, 20, 22)||0 (5, 13, 24)||NA/0/0/0/0|
|Switzerland||15 (8)||5 (8)||0 (13)||NA/0/0/NA/0|
|Thailand||15 (8)||10 (8)||15 (11, 13)||8/15/15/5/5|
|Trinidad & Tobago||30||30||30||NA/15/15/NA/0|
|Tunisia||20 (8)||14 (8)||15||10 (12)/15/15/15/15|
|Turkey||20 (8)||15 (8)||15 (5, 11, 13)||5/10/10/10/10|
|Ukraine||15 (14)||5 (14)||0||NA/10/10/10/10|
|United Kingdom||15 (18, 21)||5 (18, 20, 21)||0 (5, 13, 21)||NA/0/0/0/0|
|Venezuela||15 (18)||5 (18)||10 (5, 13, 17)||5/10/10/10/10|
a This table was initially adapted from Table 1 of the IRS Tax Treaty Tables, available at www.irs.gov/individuals/international-taxpayers/tax-treaty-tables.
b The exemption or reduction in rate of source-state taxation of dividends, interest, and royalties generally does not apply if the recipient has a PE in the United States and the property giving rise to the income is attributable to such PE. Under certain treaties, the exemption or reduction in rate also does not apply if the property producing the income is attributable to a fixed base in the United States from which the recipient performs independent personal services.
Under US domestic law, for the purpose of applying any exemption from, or reduction of, any tax provided by any US tax treaty with respect to income that is not effectively connected with the conduct of a US trade or business, a foreign person shall generally be deemed not to have a US PE at any time during the tax year.
c Please note the tax rates and associated footnotes appearing in the 'Royalties' column in the table address five types of royalties. These five are (i) industrial equipment royalties, (ii) know-how/other industrial royalties, (iii) patent royalties, (iv) motion picture and television royalties, and (v) copyright royalties. The slashes '/' between each figure and associated footnote(s) are meant to demarcate these five types of royalties. For rates indicated as 'NA', if the enterprise earns income from the leasing of equipment in the conduct of a trade or business, it is covered by the Business Profits article. For passive income from the leasing of equipment, and not in the Royalty article, it is covered by the Other Income article, if any.
- Except in certain circumstances, a dividend paid by a domestic corporation to a foreign person is US-source income that is subject to US tax at the statutory rate.
- Dividends paid by a domestic subsidiary to a foreign parent corporation that has the required percentage of stock ownership are subject to a reduced rate, usually 5%, and, under some treaties (see footnote 20), if certain additional requirements are met, WHT may be eliminated entirely. In some cases, the income of the subsidiary must meet certain requirements (e.g. a certain percentage of its total income must consist of income other than dividends and interest).
- The exemption or reduction in rate does not apply if the recipient is engaged in a trade or business in the United States through a PE that is in the United States. However, if the income is not effectively connected with a trade or business in the United States of the recipient under US domestic law, the recipient will be considered as not having a PE in the United States to apply the reduced treaty rate to that item of income.
- Interest determined with reference to the profits of the issuer or one of its associated enterprises typically is taxed at 15%.
- Contingent interest that does not qualify as portfolio interest is taxed (i) as a dividend in the case of Australia, Bangladesh, France, Ireland, Luxembourg, Sweden, and Turkey or (ii) at a rate of 15% (10% for Bulgaria, Spain, and Japan; 30% for Austria, Germany, and Switzerland).
- The exemption applies only to interest on credits, loans, and other indebtedness connected with the financing of trade between the United States and the CIS member. It does not include interest from the conduct of a general banking business.
- The tax rates in the US treaty with the former USSR still apply to the following countries: Armenia, Azerbaijan, Belarus, Georgia, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, and Uzbekistan.
- The rate in column 2 applies to dividends paid by a regulated investment company (RIC) or a real estate investment trust (REIT). However, that rate applies to dividends paid by a REIT only if the beneficial owner of the dividends is an individual holding less than a 10% interest (25% in the case of Portugal, Thailand, and Tunisia) in the REIT.
- The rate is 0% for royalties received in consideration for the use of, or the right to use, containers in international traffic. With respect to payments in consideration for copyrights of scientific work, whether a payment is in consideration for a copyright of a scientific work will be determined in accordance with the domestic law of the source state.
- The rate is 5% for interest (i) beneficially owned by a bank or other financial institution (including an insurance company) or (ii) paid due to a sale on credit of any industrial, commercial, or scientific equipment, or of any merchandise to an enterprise.
- The rate is 10% if the interest is paid on a loan granted by a bank or similar financial institution. For Thailand, the 10% rate also applies to interest from an arm's-length sale on credit of equipment, merchandise, or services.
- This is the rate for royalties for the use of, or the right to use, industrial, commercial, and scientific equipment. The rate for royalties for information concerning industrial, commercial, and scientific know-how is subject to the rate in column 5 ('other royalties').
- Exemption or reduced rate does not apply to an excess inclusion for a residual interest in a real estate mortgage investment conduit (REMIC).
- The rate in column 2 applies to dividends paid by a RIC. Dividends paid by a REIT are subject to a 30% rate.
- An election can be made to treat this interest income as if it were industrial and commercial profits taxable under article 8 of this treaty.
- The rate is 4.9% for interest derived from (i) loans granted by banks and insurance companies and (ii) bonds or securities that are regularly and substantially traded on a recognised securities market. The rate is 10% for interest not described in the preceding sentence and paid (i) by banks or (ii) by the buyer of machinery and equipment to the seller due to a sale on credit
- Interest received by a financial institution is tax exempt. For Venezuela, the rate is 4.95% if the interest is beneficially owned by a financial institution (including an insurance company).
- The rate in column 2 applies to dividends paid by a RIC or REIT. However, that rate applies to dividends paid by a REIT only if the beneficial owner of the dividends is (i) an individual (or pension fund, in the case of France or New Zealand) holding not more than a 10% interest in the REIT, (ii) a person holding not more than 5% of any class of the REIT's stock and the dividends are paid on stock that is publicly traded, or (iii) a person holding not more than a 10% interest in the REIT and the REIT is diversified.
- Interest paid or accrued on the sale of goods, merchandise, or services between enterprises is exempt. Interest paid or accrued on the sale on credit of industrial, commercial, or scientific equipment is exempt.
- Dividends received from an 80%-owned corporate subsidiary are exempt if certain conditions (including a holding period requirement) are met. For Japan, this figure is 50%.
- Exemption does not apply to amounts paid under, or as part of, a conduit arrangement.
- Amounts paid to a pension fund that are not derived from the carrying on of a business, directly or indirectly, by the fund are exempt. This includes amounts paid by a REIT only if the conditions in footnote 18 are met. For Sweden, to be entitled to the exemption, the pension fund must not sell or make a contract to sell the holding from which the dividend is derived within two months of the date the pension fund acquired the holding.
- The rate applies to dividends paid by a REIT only if the beneficial owner of the dividends is (i) an individual holding less than a 10% interest (25% in the case of the Netherlands) in the REIT, (ii) a person holding not more than 5% of any class of the REIT's stock and the dividends are paid on stock that is publicly traded, or (iii) a person holding not more than a 10% interest in the REIT and the REIT is diversified.
- Where an enterprise of a contracting state derives income from the other contracting state, and the income is attributable to the enterprise’s PE in a third jurisdiction, such income will be subject to a 15% rate if the combined tax actually paid with respect to such income in the resident state and the third jurisdiction is less than 60% (50% in the case of the US-Luxembourg and US-South Africa tax treaties) of the tax that would have been payable by the enterprise in the residence state had such income (i) been earned in the resident state and (ii) not been attributable to a PE in a third jurisdiction. Generally, this limitation applies to interest, royalties, and dividends.
- 25. This treaty has been terminated effective for amounts paid or credited on or after January 1, 2024, and for periods beginning on or after January 1, 2024.