US 30% Withholding and W8-BEN

[Heckler]

From my Brokerage, buried in advertising message topics I usually ignore. (we'll pay you $3100 cash if you invest a million new money with us...)

As a Qualified Intermediary for the Internal Revenue Service (IRS), (my broker) is able to offer clients the benefit of reduced treaty rates of withholding on income earned from United States (U.S.) source. Under the terms of this arrangement, (my broker) must obtain identity documentation from all clients to establish eligibility for U.S. tax treaty rates. U.S. withholding confirmation of residency/citizenship is required even if the client has no intention to hold U.S. securities in the account, given the possibility that Canadian securities could generate U.S. source income.

You previously provided us with the documentation requirements by completing the IRS form W-8BEN. This form will expire December 31, 2023. Therefore, in order to remain compliant with U.S. tax requirements, your account must now be re-documented for all beneficial owners on the account.

Since you have indicated that all beneficial owners are non-U.S. tax persons, the account is entitled to receive the benefit of reduced treaty rates of withholding on U.S. source income.

Please complete the W-8BEN form for each beneficial owner on your account, sign and return the document back to us.

This is an IRS form that is retained by (my broker). This form expires every three years and will need to be completed before December 31st of the third calendar year after it was completed. If you do not provide an updated W-8BEN form on or before December 31, 2023, we are required, under the IRS rules, to withhold 30% on any U.S. source income paid to your account.

Here's how to get you to fill in government forms! 

Lots of talk (Canadian Couch Potato, Portfolio Manager) about avoiding US withholding taxes in self-directed investing.  But not much about filling in and submitting the right forms every three years to make it happen!

I create this thread mostly to remind myself to fill in the forms... :)

[Heckler]

And I thought it was 15% tax on US dividends.  I wonder if my brokerage has it wrong.

https://canadiancouchpotato.com/2016/07/11/foreign-withholding-taxes-revisited/

in case the VGRO in you says huh?

[Sayyadina]

To be fair, it's just withholding - so if you file US taxes indicating you're a non-US person, you should be able to get a refund. But yeah, definitely not fun to have to file that form every three years. I think my husband put a recurring calendar invite for us as a reminder, and if he hasn't, I'll have to remind him to, ha.

Non-resident stuff is always really annoying. When we lived in the US but rented out our condo in Canada, we had a process where every month we had to submit the taxes on the gross rents to the Canadian government. Then, early in the year, we'd request a form that basically was "how much tax did we give you?" which was kind of ridiculous because we were the ones submitting the gross rents every month. It always took them forever to generate the form that told them how much we had already paid them, and then we could file expenses and get a refund based on net rather than gross.

Really really annoying.

[Heckler]

"just withholding", lol...

In one RRSP, we hold a significant amount of VTI, and I calculate a $135,000 withholding tax and MER improvement over holding VUN over the next 28 years.  This requires the W8-BEN to be submitted every three years, well worth it for the annoyance.  I confirmed we've always received the full VTI dividend payment, and now that W8-BEN is resubmitted, this will continue.


In another RRSP, we accumulate a much smaller amount of VFV instead of VOO (S&P500), mainly because the smaller more recurring VFV transactions come without brokerage fees and much simpler $C transactions.  I just calculated this out to be $19,600 higher withholding taxes and MER over the next 28 years of holding VFV over VOO. 

"Just $141 in 2021 withholding" adds up once 8% compounding is applied!