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I am investing through degiro in stocks from usa, europe etc. I have noticed that there is a 30% deducted from any us dividends and 15% from europe.

Why is there a need for the platform to tax the dividends and to whom does the deducted amount go? Is it a tax directly set by my country and the platform is forced by law to deduct and transfer the taxed amount or does it go to the country issuing the dividend? Does one need to pay taxes on top of that?

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In the US, there's a law that payers have withhold 30% of the dividend value and remit it to the IRS to cover for the receiver's income tax liability. Not familiar with European laws, but would probably be similar.

Your country has nothing to do with that and it is not sent to your country, you still need to pay taxes at home.

In order to get the money back, in the US you'd need to file an annual tax return (form 1040NR, if you're non-resident), and claim refund if the withholding was more than the tax you owe (which is expected). Then, in your home country, you file your tax returns and claim the tax paid in the US (the actual tax, as shown on form 1040NR) as a credit, if it is allowable.

Many countries have tax treaties with the US, which allow reducing this rate or even eliminating it in some cases. If you're a resident of such country, you need to tell that to the brokerage on the form W8-BEN that you submit to them.

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Why is there a need for the platform to tax the dividends and to whom does the deducted amount go?

To ensure that the appropriate government get at least part of the taxes that should be owed on the dividends. Otherwise, investors could refuse to pay tax, and it would be on the taxing country to go after them, which may cost more than they would get in tax revenue. Taxes are withheld from certain transactions in many countries where it is likely that they will be owed when you file. This is common on payroll in the US, for example. The broker will send the withheld amount to the appropriate government agency (e.g. the Treasury in the US).

You may need to speak to a local tax professional to determine if you will be required to pay tax on foreign dividends and how to submit the appropriate tax forms at the end of the year. In the US, for example, you would submit a return outlining all US investment income (including dividends), which calculates how much tax you actually owe. If that amount is less than you withheld, you will get a refund. If you owe more tax than what was withheld (e.g. you had capital gains where no tax was withheld), then you will need to pay the tax above what was withheld.

Most countries have tax treaties where you only pay the difference between the foreign and local tax. If your country charges less tax on dividends, then you may not need to pay any local tax. If they charge more tax, you may need to pay the difference.

Talk to a local tax professional that is knowledgeable about foreign taxes in the countries you are investing in. Tax laws vary from country to country so a specific answer may not be as helpful here.

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  • By reading the tax treaty between US and my country, I can't find any clause for lowering the 30% withholding rate. I suppose for a country that has 15%,it should be written there.
    – Tsaras
    Aug 31, 2022 at 7:45

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