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The Legal "Tax Loophole" for Income Investors |
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By Carla Pasternak |
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One of the subjects readers ask me about most frequently is
taxes.
More specifically, investors want to know how to minimize their tax
burden and maximize the cash that goes in their pocket. Well, I've
found just the thing -- a "loophole" that investors can use to
increase the amount of dividends they receive.
(Full Story Below) |
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The
Legal "Tax Loophole" for Income Investors
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You probably didn't know the United States withholds a
portion of dividends paid to many foreign
investors.
This amount comes right off the top, before the payment even
hits an investor's account. Even after this cut, the foreign
investor will still have to pay taxes on what's left.
But the United States isn't just being greedy. Just about
every nation does something similar.
Switzerland withholds up to 35% of dividends paid to foreign
investors... Israel withholds up to 25%... Canada takes 15%
off the top.
Typically the yields found abroad can make up the
difference. For instance, the high yields on Canadian trusts
can still make them worthwhile to most investors, even with
the added withholding tax.
And truth be told, you can get this withheld money back.
Investors filing for a foreign tax credit via IRS Form 1116
can reclaim foreign dividends withheld. But you won't
receive this cash until you file your tax return, sometimes
up to a year after the actual dividend has
been paid.
But there's also a legal tax loophole you can use to your
advantage. And it can mean more income in your pocket from
day one.
A Select Cadre of ZERO-Tax Nations
For decades the United States has wanted to attract foreign
investment. Likewise, many countries crave American capital.
As the richest nation in the world, the United States is one
of the most attractive sources of investment in the world.
To promote mutual investment, the United States has
signed tax treaties with about 50 countries that
reduce the amount of dividends withheld.
While the treaty terms vary from nation to nation --
Switzerland, for example, withholds only 15% of
dividends paid to American investors -- there is a
select cadre of nations where the dividend
withholding tax is zero. Every cent paid by
the foreign company makes it into your account.
In total, less than two dozen countries either have
tax treaties with the United States that result in
0% withholding or |
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Notable
Countries Withholding 0% for U.S. Investors |
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Argentina |
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Brazil |
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Hong Kong |
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India |
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Mexico |
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Singapore |
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South Africa |
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United Kingdom |
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simply don't withhold dividends to foreign
investors. Of those, many are smaller nations that aren't
exactly hotspots for income investing.
But there are a few gems that offer attractive dividends
and zero withholding...
Brazil doesn't withhold a dime of dividend income. It's also
one of the best growth stories in the world. But you may not
realize the juicy dividends that can be found in the
country. In my
High-Yield International
portfolios,
for instance, I hold a Brazilian telecom yielding 11.9%.
Meanwhile, Hong Kong,
the gateway to investing in China, doesn't withhold any
dividends either. And the United Kingdom, where I uncovered
a mining giant for my subscribers paying 13.2%, lets
investors keep every penny paid to them in dividends.
Now I'm not saying to ignore any country that withholds
dividends -- that would be like going to a restaurant and
limiting yourself to only one side of the menu. There are
simply too many high yields out there that are attractive,
even if a little is taken off the top.
But if maximizing short-term income is your primary goal,
then this "tax loophole" should be one of your favorite
tools.
Good Investing!
Carla Pasternak's Dividend Opportunities
P.S.
-- Don't miss a single issue! Add our address,
Research@DividendOpportunities.com,
to your Address Book or Safe List. For instructions,
go
here.
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Notes
The federal government is facing a lawsuit
over billions in unclaimed bonds that date back to the patriotic
fundraising efforts of World War II, leading to a showdown
between states who say they should be given the money and a
Treasury Department that claims ownership.
More than $16 billion worth of the bonds are unclaimed, either
lost or forgotten about with the death of the original
purchasers.
The state attorneys general suing the Treasury Department charge
that the federal government made no effort to find those people.
They want the money given to the states, who have a legal system
in place for finding the owners of unclaimed funds.
--
Associated Press
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