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What is the withholding tax on US dividends?
I’m going to provide a quick summary of the US withholding tax on investments, Wanda, before addressing Enterprise Products Partners (EPD) specifically.
First, US stocks are generally subject to a 30% withholding tax on dividends for non-residents. Many countries, including Canada, have tax treaties with the US to ensure a reduced withholding tax rate. For eligible Canadian residents, the tax may be reduced to 15%. With a registered retirement benefit plan (RRSP), the tax can be reduced to 0%.
Eligibility to Reclaim US Withholding Tax
To qualify, an investor must complete and submit this form to their investment firm: Form W-8BEN Certificate of Foreign Beneficial Ownership for US Withholding and Reporting (Individuals).
These forms are usually valid until the end of the third calendar year after signing, so they have to be signed again every three years.
US stock dividends paid into an RRSP, Registered Retirement Income Fund (RRIF), or similar registered retirement account are generally exempt from withholding taxes for Canadian residents who have completed W-8BEN forms. For non-registered and tax-exempt savings accounts (TFSAs), the reduced rate of 15% generally applies.
If excess taxes are withheld, they can be reclaimed by filing a US tax return. However, the time and cost involved may be greater than the possible refund unless the withholding is significant.
An important point to note is that Canadian mutual funds and exchange-traded funds (ETFs) that own US stocks are considered Canadian investments and are subject to a 15% withholding tax. If you hold these in your RRSP, they do not qualify for the 0% withholding rate. This is because the mutual fund or ETF is considered a shareholder of the US stocks, not you or your RRSP.
EDP Dividends for Canadians
In your case, Wanda, you own shares in Enterprise Products Partners, a master limited partnership traded on the New York Stock Exchange (NYSE). Based on the current quarterly dividend and the share price, the annual dividend yield is approximately 7.15%.