Foreign Withholding tax

Sharesight can help you track withholding taxes on your investments, making it a valuable tool for investors who want to accurately monitor their portfolio performance, including the impact of taxes. It simplifies the process of managing and reporting taxes, especially for diversified or international portfolios.

Foreign Withholding Tax

A foreign withholding tax is a tax levied by a country on income earned by non-residents within its jurisdiction. This tax is typically deducted at the source, meaning it is withheld by the payer (e.g., a company or financial institution) before the income is remitted to the foreign recipient. The purpose of this tax is to ensure that the country collects revenue on income generated within its borders, even if the recipient is not a resident.

Common Types of Income Subject to Foreign Withholding Tax:

Dividends: Tax on dividends paid to foreign shareholders.

Interest: Tax on interest payments made to foreign lenders or bondholders.

Royalties: Tax on payments for the use of intellectual property, such as patents or copyrights, by foreign entities.

Rents: Tax on income derived from renting property located in the country.

Capital Gains: In some cases, tax on gains from the sale of assets located in the country.

How to set foreign Withholding tax on Sharesight

The withholding tax rate varies from country to country and even between different types of income (e.g., dividends, interest, royalties) due to several factors, including domestic tax policies, international tax treaties, and the type of income involved. Hence, setting up foreign withholding tax rates in Sharesight is an important step to ensure accurate tracking of your investment performance, especially if you hold international stocks that are subject to withholding taxes. Here’s a step-by-step guide on how to do this:

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1. Login into your Sharesight account and select the portfolio that contains the international stock or investment for which you want to set the foreign withholding tax rate.

2. Click on the specific holding (e.g., a U.S. stock) for which you want to set the withholding tax rate.

3. Click on the ‘Edit holding’ tab

4. Enter the applicable withholding tax rate and click on ‘Apply all changes’

Note: If you are subject to foreign withholding tax, it is advisable to consult a tax professional to understand your obligations and potential relief mechanisms.

FAQ’S

1. Can you explain why the withholding tax rate for US stocks, as calculated by Sharesight, differs on my AU portfolio compared to the dividend statement?
   • For the Australian Portfolio, Sharesight automatically calculates the tax withheld amount based on the default tax rate of 15%, assuming that investor has completed the W-8BEN Form. If the investor has not completed this form, the rate needs to be updated to 30% (or applicable rates).
2. Will the correct withholding tax rate update also affect past dividends?
   • If the historical dividends has not yet been confirmed under ‘Trades & income’ tab, Sharesight will automatically recalculate the tax withheld amount based on the new updated rate. However, if the historical dividend has already been confirmed, it will need to be reset for the updated rate to be applied on historical payment.
3. Why is it important to record accurate tax withheld amount?
   • Recording accurate withholding tax amounts is vital for determining net investment returns, ensuring tax compliance, enabling effective performance benchmarking, optimizing tax strategies, managing cash flow, maintaining transparent reporting, avoiding double taxation, and providing a reliable audit trail.
4. How can one determine their withholding tax rate?

   • The withholding tax rate details are usually available on the dividend statement. Obtain the dividend statement provided by the company or financial institution that issued the dividend. This is usually available through your brokerage account or directly from the company’s investor relations department. If the rate is not clearly specified, use the following formula to calculate the withholding tax rate:

     Withholding Tax Rate (%)=( Withholding Tax Amount / Gross Dividend Amount)×100

5. Why some of my holdings does not have the option to enter the foreign withholding tax rate?
   • The option to enter the foreign withholding tax rate is only available for foreign stocks in a portfolio. For example, if your portfolio’s tax residency is in the United States, you can only enter a foreign withholding tax rate for non-US stocks.

Last modified on April 10, 2025 UTC