Are there foreign taxes on foreign bond payments

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Olduvai
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Are there foreign taxes on foreign bond payments

Postby Olduvai » Sat Feb 09, 2013 2:58 pm

Is any foreign tax withheld from interest payments made by foreign government bonds? Or foreign corporate bonds? Also, does it make sense to own foreign stocks in my IRA, since the foreign taxes withheld aren't deductible inside the IRA?

Clive
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Re: Are there foreign taxes on foreign bond payments

Postby Clive » Sat Feb 09, 2013 3:35 pm

The 'withholding tax' tab on this link https://www.dits.deloitte.com/DomesticR ... atrix.aspx will provide an indication of what various countries withhold

There may be a tax treaty however between your and the foreign country that might reduce the rate.

In some cases you can reclaim the withheld amount, or offset it against tax you pay domestically.

tj
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Re: Are there foreign taxes on foreign bond payments

Postby tj » Sat Feb 09, 2013 10:44 pm

Olduvai wrote:Is any foreign tax withheld from interest payments made by foreign government bonds? Or foreign corporate bonds? Also, does it make sense to own foreign stocks in my IRA, since the foreign taxes withheld aren't deductible inside the IRA?




I think you'd need a very large portfolio for it make a difference. I had less than $30 foreign tax credit last year on a low 5 figure balance. I would not have lost any sleep had I held that fund in a tax deferred account.

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grabiner
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Re: Are there foreign taxes on foreign bond payments

Postby grabiner » Sun Feb 10, 2013 5:48 pm

Olduvai wrote:Is any foreign tax withheld from interest payments made by foreign government bonds? Or foreign corporate bonds? Also, does it make sense to own foreign stocks in my IRA, since the foreign taxes withheld aren't deductible inside the IRA?


For most foreign stock funds, the taxes withheld are about 7% of the dividend yield; therefore, you lose 0.14% by not recovering the foreign taxes on a fund with a 2% yield. You would lose more than 0.14% to taxes if you held the fund in a taxable account.

The foreign tax credit is the reason that foreign stock index funds are often the best funds to put in a taxable account if you must put something there. But if you can tax-defer everything, that is certainly better.
David Grabiner


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