US withholding tax on US equity derivatives
US withholding tax on US equity derivatives – 871 (m)
Due to new tax regulations under U.S. code section 871 (m), there have been changes to the way U.S. equity dividend adjustments paid to clients on CFDs on shares in U.S. incorporated companies, certain ETFs and indices, are taxed.
For the majority of FOREX.com customers, you are not required to take any further action. However, please ensure you read the information below and take any necessary actions to ensure that the appropriate tax treatment is applied to your account.
Who will be affected?
This regulation applies to FOREX.com individual and joint accounts, corporate accounts, trusts and partnerships with long CFD positions on shares in US incorporated companies, ETFs which track U.S. equities and any non-qualified indices which contain U.S. equities that were, in each case, opened on or after 1st January 2017.
The withholding tax does not apply to:
- Qualified indices: examples of qualified indices may include: Dow Jones Industrial Average (Wall St), S&P 500 (SP 500)
- Short positions
- Trades opened before 1st Jan 2017
What will the impact be?
FOREX.com clients trading in affected products will generally be subject to a 30% withholding tax on dividend adjustment payments that must be remitted to the U.S. Internal Revenue Service, although some countries have tax treaties that could result in a lower rate being applied. For example, an UK tax resident would be subject to 15% tax withholding rather than 30%.
Withholding tax will be applied to any dividend adjustment that is due to be paid into your account on any affected products, meaning you will receive the net amount of the dividend adjustment after tax. For the majority of clients, you will continue to receive the same dividend adjustment after 871m as before 871m, but going forward the tax withheld will be paid directly to the IRS on your behalf.
What do you need to do?
Individual and joint accountsFor individual and joint accounts, FOREX.com will use the information we hold on file obtained from you during our on-boarding process and any subsequent updates that we have received from you to determine the rate of tax that will be applied. It is important that the information we hold about you, particularly your address, is correct to ensure that the correct amount of withholding tax is applied.
If you think that FOREX.com may not have your current address, it is important that you contact our KYC team as soon as possible.
If you only pay tax in the country in which you live (and we have your correct Country of Residence on record), you need take no further action. FOREX.com will ensure the applicable rate of withholding tax, based on the residence information you provided to us, will be applied automatically to any dividend adjustments that you may receive.
If you also pay tax outside the country in which you live, and wish to benefit from a reduced tax treaty rate, you will need to take further action as follows:
U.S. tax residents
If you pay individual federal income tax in the United States, please provide a copy of one of the following documents:
- U.S. passport (in date)
- Birth certificate (issued by a US hospital)
- U.S. naturalization certificate
- U.S. green card
- Completed and signed U.S. tax form W-9 (including a valid SSN)
Non-US tax residents
If you believe that you are a "tax resident" (i.e. pay income tax) of a country outside of your country of residence (excluding the United States) which has a tax treaty in place with the U.S. with a lower taxation rate than your country of residency, then please complete and return the following W-8BEN form.
This will allow you to claim treaty benefits for that country.
Corporate accounts (including trusts and partnerships)
Withholding tax will be applied at the default rate of 30% until the following form is completed: Tax Treaty for Legal Entity Accounts. Based on the information supplied, we will apply the applicable rate of withholding tax, which may be different from the 30% default rate.
Where dividend adjustments on affected products have been paid to you and taxes withheld, we are required to send relevant information to the IRS on an annual basis, which we will do directly or via a third-party agent engaged for that purpose. This information includes a summary of the withholding tax paid to the IRS during the calendar year, the gross dividend adjustment payments applicable to affected products that you traded and the net dividend adjustment paid to you. A copy of the tax form submitted to the IRS, the Form 1042-S, will be posted to you each year. Please note that your account statements and information available through the FOREX.com platform will only show the net dividends paid to you. Accordingly, it is important to retain the Form 1042-S that is sent to you, as you may need it to complete your personal tax returns. Please consult your tax professional for more information.
Please contact the Client Management Team if you have any questions.