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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.

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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.

  • 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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