A foreign dividend is taxed twice before it reaches you: the paying country withholds at source, then your country of residence taxes the same income and credits what was already paid. List your dividends one row per holding and it totals the foreign withholding and works out the credit ceiling country by country. The residence rate is optional.
Treaty rates apply only once the paperwork (a residence certificate, W-8BEN and similar) is on file. Without it, the statutory rate is withheld.
The foreign tax credit is capped at your home-country tax on the same income. Anything beyond that is not refunded.
The ceiling is grouped per country, not per item — so calculating each holding separately and adding them up overstates the tax.
Scope first. The paying-country side is exact: which rate a country withholds from non-residents (statutory and treaty), what actually leaves in foreign tax across your holdings, and how much of it is lost to the credit ceiling. That is a rate table and arithmetic.
The residence side is an approximation. The tool takes one residence rate and applies it to the whole amount. It applies none of that country's annual allowances, exempt bands, progressive brackets or elections. So it matches reality where a flat rate settles the tax — Japan at 20.315%, France's 30% PFU, Korea below its threshold at 15.4% — and can be off by several times at small amounts where an allowance exists: Germany has a €1,000 Sparer-Pauschbetrag, the UK a dividend allowance.
That is why the residence rate is optional. Leave it blank and the tool stops at «received after foreign withholding», which is exact rather than approximate.
And this tool makes no filing determination. Whether you must file where you live, and whether you cross a threshold, follows rules that differ completely by country and needs a per-country tool. Residents of Korea have the financial income tax calculator for that.
Calculating each payment separately and adding them up overstates the tax, because the credit ceiling is computed per group rather than per item — headroom left by one holding can absorb the excess from another in the same country.
In numbers, at a 15% residence rate: a US REIT paying 1,000,000 with 30% withheld (300,000) plus US interest paying 1,000,000 with nothing withheld. Separately: the REIT credits only up to its 150,000 ceiling and loses 150,000, costing 300,000; the interest has no foreign tax to credit so 150,000 is added — 450,000 in total. Together: the ceiling on 2,000,000 of US income is 300,000, so the whole 300,000 is credited and nothing is added — 300,000 in total.
The same input, a 50% difference. So the tool takes a list and groups the ceiling by country.
Grouping by country rather than across all foreign income is the conservative choice: Korea applies a per-country limitation, so a US excess cannot be used against Japanese income. Countries that limit per income basket, such as the US, do allow that offset, so the real credit there can be larger than this shows.
Two countries claim the same income. The paying country taxes it because the profit was earned there; your country of residence taxes it because you live there. Left alone, the same money is taxed twice over.
Two mechanisms prevent that. A tax treaty caps the rate the paying country may withhold, and the foreign tax credit subtracts what was already withheld from your domestic bill. Together they pull the total burden toward the higher of the two rates rather than their sum.
So adding «foreign tax + domestic tax» overstates the real cost badly. That is why the credit step is shown as its own line here.
The table carries two numbers for a reason. The statutory rate is what the country's own law imposes on non-residents; the treaty rate is the ceiling agreed with your country. File nothing and you get the statutory rate.
The US is the clearest case: 30% statutory, 15% by treaty. Filing a W-8BEN — the certificate of foreign status of beneficial owner — brings it to 15%, and brokers usually collect it when the account is opened.
The difference is a factor of two, decided by one form. If you hold foreign shares through an account you opened yourself, or an old account whose W-8BEN has expired (they do expire), check which rate is actually being withheld.
This is the most misunderstood part. The credit does not refund foreign tax; it reduces domestic tax. If there is no domestic tax to reduce, there is no credit.
In numbers: on a 1,000 dividend with 30% withheld abroad (300) and a 15.4% home rate (154), the credit stops at 154. The remaining 146 is not recoverable anywhere, and the total burden is 30%.
The other direction is friendlier. Withheld 15% abroad against a 15.4% home rate: the 15% is credited and you add 0.4 percentage points.
In other words the total lands at roughly the higher of the two rates. Once that is clear, so is the value of securing the treaty rate — it has to come down below your domestic rate for the excess to disappear.
The rates in this table are the ones commonly applied. The rate that applies to you depends on both countries, because a treaty is a document between two specific states. The same US dividend is governed by a different treaty for a Korean resident than for a German one.
Many treaties also split the rate by ownership: a company holding a substantial stake gets a lower rate (often 5%), while an individual portfolio investor gets the higher one. This table uses the portfolio-investor rate.
Some treaties add a minimum holding period. For a large dividend it is worth reading the dividends article of the actual treaty between your country of residence and the paying country.
Some countries do not apply the treaty rate up front. They withhold at the statutory rate and refund the difference only if you file a reclaim. Switzerland (35%), Finland (35%), Germany (26.375%), Sweden, Denmark, Norway and Italy work this way.
In practice those reclaims often do not happen. The paperwork is heavy, and for small amounts an agent's fee exceeds the refund. The result is a position that is «15% by treaty» but 35% in reality.
So when comparing shares in those markets, subtract the real burden rather than the treaty rate. A headline 4% yield at a 35% effective rate is 2.6% after tax.
Within one country the rate can depend on what kind of distribution it is. Australia's franked dividends come out of profits that already bore corporate tax, and non-resident withholding is waived on the franked portion — only the unfranked part is taxed.
Return-of-capital portions of US REIT distributions, and partnership (MLP) distributions, follow different withholding rules because they are not dividends for tax purposes. MLPs in particular can carry a high rate for non-residents.
Stock dividends and distributions out of capital reserves are treated differently again. Your dividend advice states the breakdown, so if the rate is not what you expected, start there.
First, confirm the treaty rate is actually being applied. Compare the withholding rate on your dividend statement with the treaty column here. A mismatch usually means a paperwork problem.
Second, do not skip the credit at home. Where dividends are taxed by withholding alone, this is automatic; where they enter an annual return, the credit has to be claimed on that return.
Third, price reclaim countries at their statutory rate if you do not intend to file for a refund. That is the burden you will actually carry.
Fourth, check whether a tax-advantaged account helps. Note the limit: such accounts relieve domestic tax, not foreign withholding — which still comes out inside the account. Worse, if the domestic tax becomes zero there is nothing left for the foreign tax to offset, so it turns into a pure cost.
The US statutory rate for non-residents is 30%. A resident of a treaty country who files a W-8BEN generally has it reduced to 15%. Without that form the full 30% is withheld.
Only the difference, and only if your home rate is higher. With 15% withheld abroad and a 15.4% home rate, you add 0.4 percentage points. That is what the foreign tax credit is for.
Not from your home country. The credit cannot exceed the tax you owe at home on that income, so the excess has nothing to offset. In countries with a high statutory rate — Switzerland and Finland at 35% — skipping the paperwork leaves that loss in place.
They are not withheld at source. Your home country still taxes them, and because there is no foreign tax to credit, you pay the full domestic rate.
Leave the country cell on «—» and type the rate that was actually applied. Your dividend advice or broker statement states the withholding rate. Rows with no country are grouped together for the credit ceiling.
What this tool bases its numbers on, and how far those numbers go.
Foreign withholding = gross × foreign rate · Domestic tax = gross × domestic rate · Foreign tax credit = min(foreign withholding, domestic tax) · Total tax = foreign withholding + (domestic tax − credit) · Net = gross − total taxGross 1,000 · US treaty rate 15% → 150 withheld · domestic 15.4% → 154 · credit min(150, 154) = 150 → 4 additional · total 154 · net 846 (15.4% effective) / At the 30% statutory rate: 300 withheld, credit capped at 154, so 146 is uncreditable · total 300 · net 700