Your brokerage account and the rate they withhold

Dividends and interest paid into a brokerage account are frequently taxed at source, and the rate depends on where you have told the broker you are tax resident. It is the most common unforced error in a relocation and the easiest to fix.

How it works

• The country where the paying company is resident taxes the dividend at its domestic rate.
• A double tax treaty between that country and your country of residence may reduce that rate.
• The reduction is not automatic. It is claimed, usually by a declaration lodged with the broker, and it applies from the date you lodge it rather than retrospectively.
• Your broker withholds according to what your file says, and your file says what you last told it.

What goes wrong on a move

• You move and do not tell the broker. Withholding continues at the old country's treaty rate, which may be higher or lower than your entitlement, and both directions are a problem.
• The broker cannot serve your new residence. Many brokers restrict or close accounts for residents of particular countries, and the notice period is short.
• The declaration expires. Several regimes require the residence declaration to be refreshed periodically, and lapsing it reverts you to the full domestic rate.
• You reclaim nothing. Over-withheld tax can often be reclaimed from the source country directly, and almost nobody does it because the process is tedious and the amounts feel small until they accumulate.

The specific case worth knowing

United States dividends are withheld at a high statutory rate for non-residents, reduced substantially under most treaties on production of the correct declaration. A resident of a country with no United States treaty gets no reduction at all. For someone moving from a treaty country to a non-treaty one, the same portfolio suddenly yields materially less, and nothing on the statement announces it.

The checklist on any move

• Tell every broker and bank the new residence, with the declaration each of them requires.
• Check whether your new residence has a treaty with the countries your income comes from.
• Establish whether the broker will keep you, before you move rather than after.
• Keep the withholding statements: they are the evidence for a credit in your country of residence.