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withholding tax

Tax taken from dividends or interest by the country where they are paid, before the money reaches the investor.

Withholding tax is tax taken from dividends or interest by the country where they're paid, before the money reaches you. If you hold a US share or a US-domiciled fund, the US keeps a slice of every dividend and you receive the rest. It's tax "at source" because it's taken at the payer's end, not by your own country.

The rate depends on tax treaties. The US default for non-US persons is 30%; under the US–Ukraine treaty, a Ukrainian resident can have it cut to 15% on ordinary portfolio dividends by giving the broker a W-8BEN form. Funds face withholding too: when a fund receives dividends from the companies it holds, the tax is taken inside the fund (for example 15% on US dividends paid to an Irish fund) and only shows up as a slightly lower return.

At home, as of October 2026, a Ukrainian resident owes 9% income tax plus a 5% military levy on foreign dividends. Tax withheld abroad can, with a certificate from the foreign tax authority, be credited against the Ukrainian income tax, up to the Ukrainian amount; published explanations say the military levy isn't covered by treaties. Tax taken inside a fund can't be credited by the investor at all. Check the current rules and the treaty for your situation.

Example

Grace walks through one $100 US dividend for a Zapas user who is a Ukrainian tax resident. With the treaty form filed, the US withholds 15%: $15. Ukraine's income tax on foreign dividends is 9% ($9), which the $15 paid abroad can cover with the right certificate, so no extra income tax is due; the 5% military levy ($5) is still paid in Ukraine. The user keeps $100 − $15 − $5 = $80.

Without the form, the US default of 30% would take $30. Inside a fund, the same kind of tax just lowers the return: the fictional Halden World Index factsheet assumes 30% on a 1.8% dividend yield, a drag of 0.54% a year. As of October 2026, for learning only; check the current rules.

Common mistakes

  • Comparing funds by fee and missing the withholding taken inside the fund.
  • Forgetting the treaty form, so the default 30% applies.
  • Assuming tax paid abroad covers everything; the 5% military levy is still due in Ukraine (as of October 2026).
  • Trying to credit tax withheld inside a fund; it isn't your tax to credit.

Learn it in the course