# Foreign based ETF witholding taxes



## doc987 (Nov 23, 2011)

I am aware that witholding taxes are generally based on tax treaties within countries. Does anyone know what the WT would be holding some foreign ETFs based in China, Brazil or Europe within a registered and non registered account? Also, would it matter if they were held within my corporate retained earnings compared to a general non registered account?

I would like to set up a DRIP using these 3 ETF's probably in my RRSP(but not if there is a 30% WT) 
FXI (China)
EWZ (Brazil)
VGK (Europe)

Thanks in advance.


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## PMREdmonton (Apr 6, 2009)

Here is a site for Cdn foreign dividend withholding taxes:

http://www.ritceyteam.com/pdf/withholding_tax.pdf


Here is a site for the rates for the USA:

http://www.ritceyteam.com/pdf/withholding_tax.pdf

Now with these investments I'm not sure how you're withholding taxes are going to be charged as you will be buying through an American source. I do wonder if you will end up being charged the rate for the US.

You will have no recourse to get a credit for these taxes in your RRSP. If they were held in an individual account you would get credit for these taxes but the dividend income would be taxed at your marginal tax rate.


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## doc987 (Nov 23, 2011)

Thanks PMREdmonton for those useful links.

It appears Canada has tax treaties with most countries at 15% withholding tax in corporate dividends. Thankfully, the numbers aren't all over the place -or it would be a nightmare calculation in some ETFs. My assumption at the moment is that in your RRSP, you will not be penalized with a WT if you sign a W8BEN form (for most countries inc. China, Brazil, UK and USA). In a non-registered account, looks like we lose 15% of the total dividend payout. It appears it makes sense then to hold most foreign dividend payers in a RRSP and keep all the Canadian dividend payers in a non-registered.
Can anyone confirm if I have this right?


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## cardhu (May 26, 2009)

doc ... as a Canadian investor holding US-based ETFs (all of the ones you referred to are US-based), there are potentially two layers of withholding taxes that may affect you. 

The first layer involves withholdings on money flowing *into* the ETF from its various individual holdings ... a US-based ETF that invests in foreign countries (including Canada) may be subject to withholdings by those countries, at rates that vary all over the map, the result being that the amount of dividend income flowing *into* the ETF is reduced by whatever amount is withheld ... if there are any treaties that come into play at this stage, they’d be the treaties between those countries and the US that are relevant ... Canada’s treaties with these countries are irrelevant ... there is nothing you can do about these withholdings, it is sunk money, lost forever, regardless of which type of account you hold the ETF in.

The second layer involves withholdings on money flowing *out of* the ETF, in the form of distributions ... in this case, the Canada/US tax treaty would be the one that applies, because the ETF is a US-source ... these withholdings you can do something about ... there would be no withholdings if the ETF is held in an RRSP/RRIF, but there would be in any other type of account. 

Most US dividend payers should be held in an RRSP ... then TFSA ... with a non-reg account coming in a distant third. 
Most non-US foreign investments should be held in either an RRSP or TFSA, with a non-reg account coming in a distant third.
Cdn dividend payers are usually best held in either an RRSP or TFSA, with a non-reg account coming in last.


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