Countries With No Withholding Taxes on Dividends

For those interested in dividend paying stocks, taxes are an important thing to consider. Withholding taxes are levied at source and affect all investors, regardless of where they live. In this post we will discuss countries with no withholding taxes on dividends.

Introduction to Withholding Taxes

If there is a tax that seems especially unfair to shareholders, it is the withholding tax applied by most governments on dividends paid.

When a company has profits, it must pay corporation tax. In most countries, this is quite a significant percentage, of between 20 and 30% of profits.

After all, to achieve these profits, the company has had to carry out an economic activity, pay a lot of taxes to employ people, follow the regulations set by governments, and has seen how a very high percentage of all its revenue went to the tax authorities already in the form of Value-Added Tax (VAT) or sales taxes.

On top of that, most countries apply a withholding tax on any amount of those after-tax profits that are paid out to shareholders, regardless of where those shareholders live. It is just another way to tax profits.

For example, when a company in Germany makes a profit, it must pay corporation tax (approximately 29.8%). If it then wants to distribute those net profits in the form of dividends, the German government will keep 26.375% in the form of withholding taxes. This is already double taxation.

We, as shareholders, will also have to pay taxes on the dividends we receive, in the form of income tax in the country where we are tax residents. In most cases, the withholding tax can be used to offset a portion of the income tax we will have to pay.

However, this partial offset will not be enough to make up for the withholding tax that has been applied, meaning the net dividend we receive will end up being smaller.

Consequently, once we take all taxes into consideration we realize that we are experiencing triple taxation in most cases: corporate tax, withholding of dividends at source, and income tax where we live.

It is precisely for this reason that it is so attractive to look for countries where withholding taxes do not exist. Thanks to that, only corporation tax by the company and income tax by us are paid. And this means higher net dividends for us shareholders.

We will analyze 10 countries without withholding taxes. This discussion is based on the following table published by S&P Global.

United Kingdom

The UK is probably the favorite among countries without withholding taxes on dividends. All companies domiciled there for tax purposes can distribute 100% of their dividends to their shareholders. The British tax authorities apply no levy on them.

The UK is so popular because it is home to several large companies, with well-established global businesses, well-known brands, good fundamentals, and excellent dividends.

Some of the most famous stocks in the UK are Royal Dutch Shell, British American Tobacco, BP, HSBC, Barclays, Rio Tinto, Imperial Brands, AstraZeneca, Anglo American, Unilever and GlaxoSmithKline.

The exception are REITs (real estate investment trusts) domiciled in the United Kingdom, which are subject to withholding taxes on dividends. Specifically, 20% of the dividends paid are withheld by the UK tax authorities.

If you are interested in the most important stock market indices in the United Kingdom, you can take a look at this post:
The 7 Most Important Stock Market Indexes in the UK

Brazil

Brazil is one of the most important emerging markets and part of the BRICS. It is also one of the few countries in the world that does apply any withholding tax on the dividends that companies pay to their shareholders.

The South American country has several well-known companies, many of them in the natural resources space. These are usually a good bet in times of high inflation.

Some of the most famous stocks listed in Brazil are Petrobras, Vale, Itau, Unibanco and B3. It should be noted that some Brazilian companies pay their dividends in US dollars, instead of Brazilian Reals, with the goal to give more confidence to their foreign shareholders.

If you want to learn more about Brazil’s stock market indices, you can do so here:
Top 3 Brazil Stock Market Indexes

Hong Kong

When it comes to investing in Asia, Hong Kong is one of the most interesting places. Most important Chinese companies are listed on the Hong Kong Stock Exchange.

As you may know, Hong Kong is part of China. However, it has its own laws and securities regulations. Those allow Chinese companies incorporated outside of mainland China, for example in Hong Kong, to receive a more favorable tax treatment from the authorities.

Companies incorporated in Hong Kong are not subject to withholding taxes when they pay out dividends to shareholders. This is key for those global investors interested in investing in China.

For a detailed analysis on the stock indices of both mainland China and Hong Kong, I recommend this post:
Top 10 Stock Market Indices in China

Singapore

Singapore is a small but extremely prosperous economy, and considered one of the few global financial havens. This is thanks to its rule of law and stable political climate.

For those who wish to invest in Singapore and collect dividends there, they will be glad to learn that the Singaporean government does not take any withholding taxes.

Hungary

As one of the most economically successful countries in Eastern Europe, Hungary is also one of the most attractive places from a tax perspective. In fact, Hungary has the lowest corporation tax of all European Union countries at 9%. This is even lower than the rate in Ireland.

Additionally, dividends paid by Hungarian companies are not subject to withholding taxes. As a result, almost all profits gained by Hungarian companies can end up in the pockets of their shareholders.

Estonia

Estonia has one of the most attractive fiscal regimes within the European Union. Thanks to it, the Baltic country has achieved an enviable level of economic development.

Due to the size of the country, its capital markets are very small. So there are not a lot of companies to invest in. However, if you do find one, you will not see any withholding tax on dividends.

Latvia

Latvia is another Baltic economy with a good economic track record and attractive fiscal regime. Like its northern neighbor, its capital markets are small, but no withholding is applied on dividends distributed to shareholders.

United Arab Emirates

The United Arab Emirates, home to the famous cities of Dubai and Abu Dhabi, is one of the most attractive tax jurisdictions on the planet. In fact, it is one of the few countries in the world without income taxes.

UAE companies that are not engaged in the oil and gas business pay no corporation tax. And dividends paid to shareholders are not subject to withholding taxes.

Although it is a small country, the number of companies listed on the Dubai Stock Exchange is considerable.

Qatar

Qatar is another country considered a true tax haven. As in the United Arab Emirates, Qatar-based companies do not pay corporation taxes. And dividends that are distributed to shareholders are also not subject to withholding taxes.

Malaysia

Malaysia is a promising emerging country in Southeast Asia. With a population of about 30 million people, the size of the Malaysian economy is already quite large. As a result, there are already a good number of companies in which we can invest as international shareholders.

One of the advantages of putting our capital there is that dividends will not be subject to withholding taxes.

Vietnam

Vietnam is another promising country and Asia and one that does not charge withholding taxes on dividends paid by their companies.

Vietnam has a population of almost 100 million inhabitants. That makes it bigger than any country in the European Union and with a better demographic profile. As a result, investing in Vietnam can be very lucrative in the long run.

It is important to mention that this was not an exhaustive list. There are a few more countries without withholding taxes on dividends. However, I have not included them here because they are not relevant enough for international investors.

I hope you found this information useful. It is for me. If you are interested in collecting dividends, minimizing withholding taxes is a great way to boost the net return of your investments.

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