With the S&P 500 index breaking new highs, the US market offers investors unmatched growth opportunities. However, especially for dividend-oriented investors, the cost of the US withholding tax is real. And for Singaporeans used to filing personal income tax returns with IRAS, this withholding tax is not always evident, as it is deducted even before it reaches your brokerage accounts. Although we can’t avoid it, we should still understand how it works to minimise the drag on our long-term returns.

What is the US Withholding Tax and How Does it Work?

If you are expecting US$100 in dividends from your US holdings, you would end up getting just US$70 in your brokerage account. This is because you just paid 30% of your dividends as a withholding tax to the US government. This tax is designed to be collected at the source, where the custodian bank or broker acts as the withholding agent....