I still hold 1,500 shares of a privately owned US company that I used to work for 3 years ago and I kept some of my shares when I left. I have just been told that the company is about to pay a one-off dividend of $0.30 a share (I guess the founder wants to buy a mansion or a yacht of something). Unfortunately the company has given almost zero notice to non-employee shareholders and the divi is payable on 28th Feb.
My question regards witholding tax. The company tells me that they will deduct 15% witholding tax. If I had more time then maybe I could file a form to say I was not living in the US and escape it (a W2?) but I don't think I have time to get this done since I am away a lot between now and
28 Feb. If I take the money minus 15% can I offset the 15% against my UK tax liability when I come to file my 2004/2005 UK personal tax return?
Some brokers and institutions let you do this by web form, I did this only a few weeks ago. Or you may be able to fax it. But if you cant fix that why not declare what you received (eg accounting for the 15% missing)
1) The treaty rate is 15%. It seems you probably did file the appropriate US form (W8; W2 is for employee withholding (PAYE)) Sample at:
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2) If, for some reason, you are entitled to a refund of that tax -- because you are otherwise taxable in the US -- file a nonresident (form 1040-NR -- download it from
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or a resident form 1040 after January 1, 2005. Get a refund of the excess tax withheld.
3) Claim a credit on your UK tax for the year ending April 5, 2006 of whatever tax you paid to the USA. You would be well advised to include a note on your tax return for April 5, 2005 explaining what you are doing, in case your tax inspector disagrees about the appropriate year. (If you forego the credit in the earlier year, and you lose on the issue of the later year being the appropriate one, you can lose the credit too. Unless you make full disclosure.)
The relevant Tax Treaty provision:
"ARTICLE 10 "Dividends
"1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.
"2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the dividends are beneficially owned by a resident of the other Contracting State, the tax so charged shall not exceed, except as otherwise provided,
"a) 5 per cent. of the gross amount of the dividends if the beneficial owner is a company that owns shares representing directly or indirectly at least
10 per cent. of the voting power of the company paying the dividends;
"b) 15 per cent. of the gross amount of the dividends in all other cases. This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid."
UK double taxation relief:
Inland Revenue Manual
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Relevant statutory instruments
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You can download SA106 notes for further information:
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