US withholding tax 2025: Everything you need to know about the upcoming increase!
If you invest in US stocks or ETFs with US holdings, you have to deal with a bitter reality: US withholding tax. It is deducted directly from your dividends, and some private investors know very little about it. In this article, you will learn everything you need to know: what Trump has planned, how the tax currently works, how you can reclaim US withholding tax and how you can protect yourself from it in the future.
In brief:
- Trump plans to increase withholding tax on US dividends by 5 per cent annually until it reaches over 30 per cent.
- European investors with US stocks or MSCI World ETFs are particularly affected.
- Only with a correctly filed W-8BEN form can you benefit from the lower DBA tax rate.
- You can claim back any excess withholding tax paid to the IRS.
- Swap ETFs, Irish domicile and partial exemption help you avoid taxes directly.
Trump’s tax hammer: Withholding tax on dividends from the US to rise sharply
Donald Trump is planning an aggressive and far-reaching tax reform. The planned measure will not only affect large corporations, but also you as a private investor: a massive increase in withholding tax on dividends for foreign investors.
The key points at a glance:
- Annual increase in withholding tax: The tax is to rise by 5 percentage points each year until it exceeds 30%.
- Foreign investors affected: All investors outside the United States, including european investors, are directly affected.
- Double taxation agreement (DTA) undermined: The agreement with the european markets will be ineffective in practice, as the withholding tax goes beyond its scope.
- Political background: The measure is intended as a response to European digital taxes on US corporations.
What does this mean for you specifically?
Until now, the DBA has protected you: instead of the regular 30% US withholding tax, only 15% is deducted. And you can offset this against your flat-rate withholding tax in your country. This means that you are left with a substantial portion of your dividends after tax. With Trump’s plans, this advantage would be history.
The new regulation would result in your net dividend shrinking year after year. This would significantly reduce the incentive to invest in the US. Those with a high proportion of US shares in their portfolios, for example through ETFs such as the MSCI World, would be particularly affected.
Why the impact is greater than many people think
The popular MSCI World ETF currently has over 70% US exposure. So if you invest globally, you are particularly affected. Your net dividend will shrink, and in the long term, ETF performance may also suffer if capital is withdrawn from US markets.
The tax disadvantages could also trigger a flight of capital from US stocks. This would negatively impact not only your dividends, but also the performance of your funds and stocks. The exchange rate could also suffer if larger US withholding taxes are deducted from your dividends.
Good to know:
Uncertainty surrounding political decisions increases volatility. Many institutional investors could withdraw from US markets, putting additional pressure on prices and yields.
How does US withholding tax currently work?
The US automatically deducts tax from every dividend payment made to foreign investors. This is done directly at source, which is why it is called withholding tax. The amount depends on your country of residence and the tax agreement in place.
The most important figures at a glance:
| Residence / Deposit structure | US withholding tax | speciality |
| Without DBA (e.g. tax havens) | 30 % | No credit, full charge |
| With DBA | 15 % | Subject to US tax on capital gains |
| ETFs in Ireland (e.g. iShares) | 15 % | Advantage through Ireland’s DTA with the USA |
| ETFs in Luxembourg | 30 % | No tax agreement with the USA |
Difference: US stocks vs. US ETFs domiciled in the US
A common misconception is that all ETFs are treated the same. However, there is a big difference between investing directly in a US stock and investing in a US-based ETF.
US ETFs domiciled in the US (e.g. many Vanguard products) are subject to full withholding tax of 30% by default if no W-8BEN form has been correctly filed. In contrast, European ETFs domiciled in Ireland benefit from the more favourable DBA rate of 15%. It is therefore essential to check the ISIN and tax domicile of your ETF.
Why many brokers automatically retain only 15%
Most european brokers are part of the US tax authority’s Qualified Intermediary (QI) programme. This automatically reduces your tax to 15%. The prerequisite is that you have submitted a correctly completed W-8BEN form to your broker.
Without this form, 30% may still be withheld. It is also important to note that not all brokers manage these forms with the same degree of diligence. It is therefore worth checking once a year to ensure that everything has been recorded correctly. If you are unsure or are staying abroad for an extended period, the automatic reduction can be suspended.
How much do you have left after taxes?
A simple example shows what remains of a $100 dividend:
| Case study | Gross | Withholding tax | Net (before tax) |
| Without DBA | 100 $ | 30 $ | 70 $ |
| With DBA (e.g., ES, with W-8) Consult your tax advisor. | 100 $ | 15 $ | 85 $ |
You can offset this $15 against the withholding tax in your country. This prevents double taxation. However, if 30% was withheld, a manual refund request is necessary. And that is anything but convenient.
Reclaiming US withholding tax: a step-by-step guide
If more than 15% withholding tax was deducted, you are entitled to claim a refund of the difference directly from the US Internal Revenue Service (IRS). This is possible, but not entirely straightforward.
Basic rules for reclamation:
- Refund requirement: Only the amount exceeding the 15% specified in the DTA can be reclaimed. For example, if 30% was withheld.
- Deadline: The application must be submitted within 36 months of the dividend payment.
- Application: The refund must be requested directly from the US Internal Revenue Service (IRS), not through your broker or tax office.
- Reimbursement method: Payment is usually made by US cheque or to a foreign account.
What you need to reclaim US withholding tax
To claim back your US withholding tax, you will need three forms:
- Form W-8BEN, which should ideally have been submitted to the broker prior to the dividend payment.
- Form 1042-S, which your broker will send you on request. It documents the tax actually withheld.
- Form 1040NR or, if applicable, 1120-F, which you use to officially submit your claim to the IRS. Important: Everything must be filled out correctly, completely and in English. Small errors can result in your application not being processed.
Good to know:
Specialised service providers will take care of the entire process for a fee. This can be well worth it for larger amounts.
Expect a lot of effort and a long wait
Processing by the IRS can take months. Some investors report waiting times of over a year. You must complete the application in English and may need to provide a US tax account. Alternatively, you can work with a tax advisor who is familiar with the process.
The process is only worthwhile for larger sums. If you only get back €20 or €30, the effort involved outweighs the benefit. Of course, it’s a different story if you’re talking about several hundred or even thousands of pounds.
It is also important to avoid typical mistakes:
- Missing or outdated W-8BEN Forms not signed
- No copy of Form 1042-S enclosed
- Amounts not correctly stated in US dollars
How to avoid the increase in US withholding tax in the long term
Instead of struggling with refund forms every year, you can invest more wisely in advance. There are legally sound strategies that allow you to minimise or even avoid US withholding tax altogether.
| Strategy | Tax burden | Advantage | Risk / Disadvantage |
| Swap-ETFs | 0 % | No real dividend, therefore no tax | Counterparty risk, synthetic |
| Irish ETFs | 15 % | Tax optimised due to location | Only for correctly structured funds |
| growth stocks | 0 % | No dividend, therefore no withholding tax | No regular income |
Swap ETFs: The simple tax trick
Swap ETFs do not physically track the index, but rather synthetically. You get the same performance, but no actual dividends. And therefore no withholding tax. This currently works reliably, but could be restricted by law in the future.
The concept is based on a swap deal with a bank that guarantees you the performance of the index. This means that no real money flows from the US to you and you can legally avoid paying tax.
It is important to note that in times of crisis, defaults can occur if the counterparty becomes insolvent. Risk diversification is therefore particularly important.
Ireland instead of Luxembourg
If you prefer traditional ETFs, pay attention to where they are based: Ireland is advantageous from a tax perspective, as it has a favourable agreement with the US. ETFs from Luxembourg or other locations, on the other hand, often deduct the full 30%. For Ireland-based ETFs from iShares, withholding tax is reduced to 15% and correctly stated on the tax certificate.
Here too, only correctly structured funds benefit from this. Ask your broker what type of ETF your product is based on. This is particularly important for reinvestment funds, as dividends are processed internally in these cases.
Good to know:
Search specifically for ETFs with an ‘IE00’ ISIN – they are domiciled in Ireland and are usually optimised for tax purposes.
Automatic refund of withholding tax at fund level
Many investors are unaware that with physically replicated ETFs domiciled in Ireland, withholding tax is not simply lost. Instead, it is refunded at fund level and offset against the fund assets. This means that you do not receive the tax directly, but still benefit from a better return.
The ETF provider takes care of the redemption in the background – you don’t have to do anything. ETFs from large providers such as iShares or Xtrackers have particular experience and structures in this area. This automatic refund is a real advantage over direct investments in individual shares, where you would have to take care of the redemption yourself.
Physical or synthetic – and what about sampling?
Not every ETF purchases all of the stocks it contains. Some use optimised sampling, whereby only a representative portion of the index is replicated. Others lend securities in order to generate additional income. Both strategies can have an impact on tax issues and withholding tax effects.
With sampling structures in particular, certain dividends may not be paid out at all, which in turn brings tax advantages. So pay attention to the replication method used by your ETF: full physical replication provides clarity, while sampling can be more efficient but also more complex.
Conclusion: Will you successfully avoid US withholding tax?
Withholding tax on US dividends is an important issue for every investor, regardless of whether you hold individual shares or invest broadly in ETFs. Depending on your portfolio structure, product selection and broker, you could lose hundreds or thousands of pounds. Or keep them.
What you should do now:
- Check the ETF domicile: Make sure that your ETF is domiciled in Ireland or Luxembourg. This is because the location has a direct impact on withholding tax.
- Check your W-8BEN status: Make sure that the form is filed correctly and is up to date with your broker.
- Calculate dividend yield: Determine your net dividend yield taking into account the actual tax burden.
- Rethink your strategy: Consider whether swap ETFs or growth-oriented products are better suited to your investment strategy.
- Check your withholding tax: If more than 15% has been deducted, you should consider filing a claim for a refund with the IRS.
If you want to further optimise your portfolio for tax purposes or need help selecting suitable ETFs, you should consult a tax professional. This will enable you to reduce US withholding tax in the long term.
FAQ: Frequently asked questions and answers about withholding tax in the USA
