You will be able to explain US dividend withholding and why the rate for Singapore residents is higher than for residents of some other countries.
Rachel's US fund paid its first dividend in March. The fund's announcement said it would pay US$50 on her holding. Her account showed US$35. She spent twenty minutes looking for the missing US$15 before she found a line on her statement that said tax withheld, and a rate of 30%.
Her first thought was that her broker had made a mistake, or that Singapore was taxing her. Neither was true. The US had taken its share before the money ever reached her, and it does the same for almost every Singapore resident who holds US shares or US-domiciled funds.
The US taxes certain kinds of income that US sources pay to people who are not US citizens or residents. In US tax language, such a person is a non-resident alien. Dividends from US companies are one of those kinds of income.
The IRS cannot chase millions of foreign shareholders for a few dollars each, so it makes the payer do the work. Whoever pays the dividend to a foreign holder, or the custodian that passes it along, has to keep back a portion and send it to the IRS. That is withholding tax: tax taken at source, before you receive anything. Under US rules, the standard rate on dividends paid to non-resident aliens is 30%, unless a tax treaty between the US and the holder's country sets a lower rate.
Many countries have an income tax treaty with the US that lowers the rate on dividends. Singapore does not have one. So there is no treaty rate to claim, and a Singapore resident holding US shares usually has the full 30% withheld from each dividend.
That is why you may hear a friend in another country say they lose less of their US dividends than you do. Their country has a treaty that reduces the rate. It's not a broker difference or a mistake in your account. It comes from the tax relationship between the two countries.
Lesson 3.2, What the W-8BEN does and does not do, covers the form you sign to confirm you are not a US person. That form matters, but for a Singapore resident it does not bring the rate below 30%.
The tax is taken before the dividend reaches your account. The company pays the dividend, it travels down the custody chain from lesson 1.1, and somewhere along that chain, usually at the US custodian or the broker, 30% is kept back for the IRS. What lands in your account is the rest.
A good statement shows three numbers for each dividend: the gross amount declared, the tax withheld, and the net amount credited. Some brokers show the gross and the tax as two separate lines on the same date. Some only show the net amount on the main screen, and you have to open the activity detail or the monthly statement to see the tax. The label varies: you may see withholding tax, non-resident tax, or a short code. If you cannot find it, the broker's help pages or support team can tell you where it appears.
Rachel's statement showed it as two lines: a dividend of US$50.00 and a tax entry of minus US$15.00 on the same day. Dividing US$15 by US$50 gives 30%, which confirmed what had happened.
The same rule applies to an ETF or fund that is set up in the US, even if it holds companies from all over the world. When the fund pays you a dividend, it is a US payer paying a foreign holder, so 30% is withheld. Module 5 looks at funds set up in Ireland, where the arithmetic changes, and Build and run an ETF portfolio, lesson 3.3, Domicile and withholding tax on dividends, compares the two from a portfolio point of view.
Withholding applies to dividends. It does not apply to the gain you make when you sell US shares as a non-resident. If Rachel buys a US share at US$100 and sells it at US$130, the US does not withhold tax on the US$30 gain. There are exceptions for people who spend long periods in the US and for some special kinds of asset, but for a Singapore resident trading listed US shares from here, the sale proceeds come through without US tax.
That difference shapes later choices. A holding that pays most of its return as dividends loses 30% of that part. One that pays little and grows in price loses less to withholding. Lesson 3.4 puts numbers on it.
For the activity, find one US dividend on your own statement. Look for the gross amount, the tax line and the net amount, write all three down, and divide the tax by the gross to check the rate. If your result is not 30%, note what you found and ask your broker why.
Find a US dividend on your statement and write down the gross amount, the tax withheld and the net amount, and check the rate.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).