I have read that the US government exercises a 15% (or even 30%, where the foreign country is not in the double-taxation treaty with the US) withholding tax on US dividends, if the shareholder is foreigner, that is, not US resident.

If I own a UK Ltd company, which in turn owns public US companies stocks, (e.g. Coca-Cola) do I have still have to pay double taxation? 15% of US withholding tax and 20% of UK corporate tax on US companies dividends (Since dividends are treated like corporate income) makes a 35% taxation on dividends income, which in the long term will definitely cripple the compound interest growth.

There is a way to avoid this double taxation?

NOTE: This happens even with individuals and not only with UK Ltd companies, since individuals will pay 15% US withholding tax plus UK income tax on dividends.


I'm not familiar with the UK tax law, but from the US side you most definitely will be taxed on dividends if you invest in the US. Owning investments through a corporation will subject you to double taxation. If the corporation distributes income to you in some way, you may even be subjected to triple taxation. The US-UK tax treaty may have some alleviating provisions, check with your tax adviser.

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  • Thanks for your clear reply. Just few questions to clarify the subject: 1) I read that usually the US withholding tax on dividends is 15% for countries which US has tax-treaty with, and 30% for other countries. The "withholding" meaning of the word usually is a 0% loan to the government, which, in case, may refund you or charge you for extra taxation. This doesn't seem the case: the US 15% withholding tax on dividends directly goes to the government treasury and you can't get any refund, and you can't get any discount to that: if you are not from US, you MUST pay 15% tax on dividends, right? – Marco Pagliaricci Jul 11 '14 at 16:58
  • 2) If I pay the 15% withholding tax and corporate tax on dividends which is 20%, I will pay a total of about 32% taxation on dividends. Quite a lot to make investments effective, and dividends to be reinvested and exploit the compound interests. There are some special structure that may exploit some taxes alleviation which I can have (like the 401(k) pension account), but for corporations, and not for individuals? Like some pension funds of the shareholders of the corporation. I read a corporation could do this through a Trust. Is that a common thing to do? – Marco Pagliaricci Jul 11 '14 at 17:03
  • @Marco there's no tax deferral schemes for corporations in the US. 401k/pension funds do not belong to the corporation, but to the individual employees. – littleadv Jul 11 '14 at 18:49
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    @MarcoPagliaricci re the 15% - it's not a standard amount, this is something defined in the treaty. Read the US-UK treaty for details. If no treaty - its a 30% withholding, but the actual tax is depending on your income, so you may get refund. – littleadv Jul 11 '14 at 18:50

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