What is US withholding tax on dividends for foreign investors?
The US taxes US-source dividends, interest and other FDAP income paid to foreign persons, where it is not connected with a US business, at 30% of the gross amount, withheld by the payer from the payment. Under Internal Revenue Code sections 1441 and 1442 it covers fixed, determinable, annual or periodical (FDAP) income: dividends, interest, rents, royalties and similar payments. No deductions are allowed against it. A lower rate, or an exemption, applies where the Code provides one, such as the portfolio interest exemption for qualifying US debt, or where a tax treaty between the recipient's country of residence and the US reduces it. The recipient documents its foreign status and any treaty claim to the payer.
Inside a properly structured PPLI, the insurer owns the investments in the segregated account, so withholding on US dividends is generally applied by reference to the insurer, or the fund the account invests through, and any treaty available to it, not by reference to the policyholder.
US withholding tax is the 30% US tax deducted at source from US dividends, interest and other FDAP income paid to foreign persons, reduced where the Internal Revenue Code or a tax treaty allows.
