Big, beautiful US dividend tax increase

[zbigi]

...for foreign (non-US) investors.

Trump administration wants to bump dividend tax on US stocks for countries with tax rules "hostile" towards US (that includes most of Europe) from effectively 15% to effectively 35%. This will affect both direct stock holders, as well as ETF holders. Possibly, Europeans could open a brokerage account in the US and buy American ETFs there to circumvent, but that sounds brittle.

Source:
https://www.youtube.com/watch?v=2S7gWNxzlvE

[bostonimproper]

If passed (I think there’s a good chance this gets dropped before passing through the Senate), I would expect big capital outflows from foreign companies. Less demand for US stocks leading to potential multiples contractions bringing US equities down more in line with Euro/Asian valuations.

[IlliniDave]

It probably depends a lot on the style of investor. Currently the dividend yield on the SP500 is something like 1.27%. An additional 20% tax on that is an extra haircut of 0.254%. So for investors who are investing for total return, that sucks, but I'm not sure it it makes mathematical sense to vacate the US market. Granted, it might make emotional sense to some.

In the link is a table of the top ten markets over the last ten years. One can subtract 0.254% from the US total return to get a sense of the impact of this possible tax and what options might be a better choice vs US. A caveat is that the table probably doesn't reflect any taxes on investment gains, much less "special" ones for investors who are not citizens/residents of the country.

https://www.visualcapitalist.com/ranked ... ince-2015/

I'm not a dividend investor per se, so I don't know how much impact this would be to someone pursuing that strategy.

[jacob]

This will affect both direct stock holders [...]

For direct stock holders?

I know there was this thing about the "ETF double-taxation sink" that was discussed a while back, but countries usually have tax treaties so that investors avoid double-taxation. What this does for foreign stock investors is to increase the US tax withholding. However, in most countries they get to subtract the "foreign taxes already paid" from "domestic taxes paid on ALL holdings (foreign and domestic)". Effectively, what you have to do here is to make sure that the former number doesn't exceed the latter.

Net result for the individual investor: 0
Net result for the governments: The US gets a bigger portion of the collected taxes. The domestic government gets a smaller one.

[frommi]

This would drive Treasury yields higher, and any additional revenue the U.S. retains through withholding taxes would likely be offset—or even exceeded—by the increased cost of servicing its debt. The withholding tax brings in only a small fraction compared to the interest payments the U.S. must make.
This is just a stupid mistake.

[loutfard]

However, in most countries they get to subtract the "foreign taxes already paid" from "domestic taxes paid on ALL holdings (foreign and domestic)".

Current Belgian resident US dividend taxation is 40.5% (1-.85*.7). Potential future Belgian resident US dividend taxation is 54.5% (1-.65*.7).

My exposure to the US stock market being limited to Irish domiciled accumulating ETF's, the direct negative impact for my equities portfolio would be roughly 0.15%/year (.0127 S&P500 dividend rate * .2 tax increase * .6 US market weight). That would be roughly 5% of the net returns I'm expecting. Significant, but manageable in the unlikely event this should materialise.

The real impact for non-residents might be cumulative. Yet another piece of US introduced economic uncertainty. It will be hard to unsee that pattern.

For the US, probably as frommi said, negative impact on treasuries/borrowing cost.

[Stasher]

I shared this in the Canadian forum section of MMM last week on May 24

Reading a weekly blog I follow this morning and it appears in Trump's BBB (Big Beautiful Bill), there is provisions changing taxation on Canadian companies/investors. Now this won't personally affect me as I divested all my index funds out of the US when Trump was inaugurated (yup no XAW or VCN etc). Anyhow, does anyone know more on this as it might affect a bit of your decision making process. Seems to also have a significant impact on those who do Norbits Gambit as well.

“On Thursday, the U.S. House of Representatives passed the Republican legislation, titled the One, Big, Beautiful Bill, with a narrow vote of 215-214. If it becomes law, it will override the Canadian-U.S. tax treaty that has been in place since 1942.

The 1,100-page document includes section 899, a tax proposal created as a retaliatory measure against what the U.S calls “discriminatory or unfair taxes” of foreign countries, including Canada’s digital services tax (DST), which was introduced in 2024.

The U.S legislation is still required to be passed by the Senate and receive presidential approval before it can become law. The White House expects the President to sign the final bill by July 4.

Canadian corporations that receive dividends from U.S. subsidiaries are currently subject to a 5-per-cent withholding rate under the tax treaty between the U.S. and Canada, much lower than the statutory rate of 30 per cent.

But under section 899, Canadian companies would see their tax rate increase by five percentage points each year until it reaches 20 percentage points above the statutory rate, or 50 per cent. It would remain in place until the “unfair tax” is removed.

Similarly, Canadian individuals who own U.S. securities directly are subject to a 15-per-cent withholding tax rate under the current treaty, reduced from the statutory rate of 30 per cent. Under section 899, the withholding rate could ultimately rise to 50 per cent.”

Another forum member shared this new article as followup on May 30
https://www.cnbc.com/2025/05/30/us-set- ... b1c4096d5e

[jacob]

Current Belgian resident US dividend taxation is 40.5% (1-.85*.7). Potential future Belgian resident US dividend taxation is 54.5% (1-.65*.7).

Are you implying that Belgians only get a 70% refund from foreign taxes paid? If so, then yes raising the tax rate is material.

US residents get a 100% refund as long as the foreign taxes paid don't exceed the income+gains made (They rarely do unless you have a huge foreign allocation which is rare). In this case, raising the tax rate doesn't matter (to the individual investor).

[loutfard]

Are you implying that Belgians only get a 70% refund from foreign taxes paid? If so, then yes raising the tax rate is material.

For Belgian residents, it works roughly like this for $1 in gross US dividend:
- pay 15% US dividend withholding tax: -$0.15
- taxable base for Belgian withholding tax: dividend post-US tax: $0.85
- pay 30% Belgian dividend withholding tax: -0.255
- receive 59.5% net dividend post US and Belgian tax: $0.595

Some minor details:
- ~800€/year/tax payer in dividends is exempt from Belgian dividend withholding tax, but not foreign dividend withholding tax.
- There is no foreign dividend tax refund.

[chenda]

@loutfard - How is property income taxed a la Belgium ? I was thinking about doing a thread about people who use rental income rather than equities as I am finding that I like being a landlord more than I thought I would... Also, and entirely off topic, where would you say is the most rural part of Belgium and how ERE friendly is it in terms of COL ?

[loutfard]

@loutfard - How is property income taxed a la Belgium ? I was thinking about doing a thread about people who use rental income rather than equities as I am finding that I like being a landlord more than I thought I would... Also, and entirely off topic, where would you say is the most rural part of Belgium and how ERE friendly is it in terms of COL ?

I've tried not to derail this thread by answering elsewhere.

[zbigi]

However, in most countries they get to subtract the "foreign taxes already paid" from "domestic taxes paid on ALL holdings (foreign and domestic)".

Is that the case in most countries? In Poland, the subtraction is per foreign country. You even file a separate tax form for each country you had investment income from.

[frommi]

For German investors, the current U.S. withholding tax on dividends is 15%, which is credited against Germany’s 26.5% tax on foreign investment income. So effectively, you still pay 26.5% in total—no more, no less.

However, this credit only applies to the first 15%. If the U.S. raises its withholding tax by 5 percentage points (to 20%), you’d end up paying the full 20% to the U.S. plus 11.5% in Germany (26.5% - 15% credit), totaling 31.5%. At the full proposed 20% increase (35% total), your tax would rise to 46.5%.

That means your dividend income would shrink by about 7.3% with a 5-point increase, and by 37.5% at the full 20-point increase. That’s significant.

Personally, I’ll probably avoid U.S. dividend-paying companies unless I expect substantial capital gains to make up for the tax hit.

[Scott 2]

How are you all deciding when to start paying attention to pending legislation? There's been so much back pedaling, that I've given up on trying to follow what is changing. I guess I'm waiting to experience a specific problem before taking any action. It's probably not smart to be so reactive.

[frommi]

Yes, wait and see. Even if the bill is brought into law its not clear that it automatically means higher taxes for your country of origin.

[jacob]

How are you all deciding when to start paying attention to pending legislation? There's been so much back pedaling, that I've given up on trying to follow what is changing. I guess I'm waiting to experience a specific problem before taking any action. It's probably not smart to be so reactive.

Only when and if it's signed!

Being reactive in a chaotic environment is never a good idea, because the purpose of a chaotic strategy is to induce a reactive misstep in your opponent and capitalize it on it. Some are good at this. I am not. If the rules aren't stable, I choose not to engage.

This is one of the reasons I strive to avoid "complicated" ownership arrangements of securities. By complicated I don't mean "complicated to understand" but how much financial machinery is involved. An ETF is more complicated than a mutual fund that way. Using a foreign broker is more complicated than using a domestic broker. Avoid that and dealing with chaos becomes simpler.

[Ego]

I agree that being reactive during times of purposely induced chaos is generally not good.

Keeping an eye on those who are reactive and
thinking through their likely overreactions, then preparing a plan for the overreactions that may have an outsized affect on me, is a better option.

Best to avoid getting trampled by the hysterics.

[7Wannabe5]

In any chaotic environment, "responsive" would be the most functional boundary practice. For example, the discard market is very chaotic. Just consider all the circumstances under which anything of value lands in a dumpster. Any time you do work to create or maintain order within one boundary, you externalize some chaos. The more rigid the order or boundary, the more frenzied the chaos. So, for example, a wall externalizes more chaos than a membrane, because a membrane is inherently more intelligent or responsive.

[Ego]

... a wall externalizes more chaos than a membrane, because a membrane is inherently more intelligent or responsive.

Absolutely. A correctly calibrated response depends on accurate sensing and signaling. Key to this is distinguishing between anxiety-inducing sensationalism and actual threats. Membrane receptors calibrate through adaptation, which requires exposure to variation.

Interacting with those prone to overreaction helps to understand their perspective and anticipate their responses. Regularly dealing with anxious, vulnerable, malicious and foolish people provides the exposure necessary to accurately calibrate responses to them.

Choosing to wall oneself off from a wide variety of people, while an option, increases the likelihood of a dysregulated personal response.

[jacob]

Who or what is calibrating the calibration? What gets you in trouble in investing is not ignorance or chaos(*), but what you think you know for sure that just isn't so. (I have a gazillion examples of this.)

Managing a portfolio of dividend stocks for a long-term stable income has little to do with flipping treasures from the flea market. The individual trades for the portfolio should not matter (if they do, you're doing something wrong). What matters is how the portfolio's discounted future cashflow behaves relative to the market conditions (different market environments) and that is determined by variables like risk-free yield, taxes, and future economic conditions. Not on the opinions of a wide variety of people.

(*) Key point here in terms of ignorance is that the components of the portfolio can be chosen so that the portfolio as a whole behaves differently than its individual components. Choose them deliberately and the variation of the total cash flow < the sum of the variations of the individual cash flows. As such, it does not matter whether the talking heads on TV have "emotional episodes" or whether traders at the NYSE are losing their minds. That is a problem for someone else (e.g. daytraders and liquidity providers) to deal with. IOW, the portfolio can be [financially] engineered so that ignorance about individual trades does not matter. This is because certain types of ignorance cancel out.

Metaphors are dangerous because they're ripe for deliberate misunderstanding and nitpicking, but I'll take the risk. A SWAT team is an excellent example of using deliberately induced chaos to deal with a wide range of violent criminals. Therefore a SWAT operator needs to know how to use chaos. However, this is not analogous to a dividend portfolio. A dividend portfolio is more like managing an entire police department of 50 SWAT teams. All you need for this is to know the win-rate and win-variation of each team and "math them together". You can ignore the details of each individual team. You're at the level of citywide law&order ... not the level of how to break and enter doors.