Why You Lose 30% of US Dividends: Withholding Tax and W-8BEN Explained

Plenty of Hong Kong investors open an account with Futu, Tiger or IBKR to buy US stocks. Then the first dividend arrives. The company paid US$1,000, but only US$700 shows up in the account. The missing 30% is US dividend withholding tax.

The legal basis

Section 871(a) of the US Internal Revenue Code taxes US-source "fixed or determinable annual or periodical" (FDAP) income, which includes dividends, at 30% when it goes to a nonresident alien (NRA). Section 1441 requires the payer, in practice your broker or its clearing firm, to withhold that tax when the dividend is paid. If your home jurisdiction has a tax treaty in force with the US, you may be able to claim a lower treaty rate. The United States does not appear on the Inland Revenue Department's list of comprehensive double taxation agreements, so Hong Kong investors are generally withheld at 30%. Check the Form 1042-S issued by your broker for the actual figures.

How to calculate it

Withholding tax = dividend × 30%
Net dividend received = dividend × 70%
Amount in HKD = net dividend × USD/HKD exchange rate

So a stock with a 4% headline yield actually pays a Hong Kong investor about 2.8% after tax. For a long-term income investor, compounding makes that gap grow over time.

What is the W-8BEN for?

The W-8BEN you fill in when opening a US stock account certifies that you are not a US person. Without it, your broker may treat your account under the rules for US persons. The "interest-related dividend" exemption in section 871(k) also only applies if the withholding agent has a statement that the beneficial owner is not a US person.

When is the 30% not withheld?

• The QII (qualified interest income) portion of bond ETF distributions: under section 871(k), the part a fund reports as interest-related dividends is exempt for nonresidents.
• Short-term capital gain dividends: section 871(k) has a similar exemption.
• Gains from selling shares: capital gains of nonresidents from selling US stocks are generally not subject to US withholding.

Do you pay tax again in Hong Kong?

Hong Kong taxes on a territorial-source basis and has no capital gains tax. For an ordinary individual investor, overseas dividends usually raise no Hong Kong tax issue, but check with the IRD or an accountant if your situation is unusual. If you carry on a securities trading business in Hong Kong, those profits may be subject to profits tax. See our other article, Do You Pay Local Tax on US Stocks?

Tip: keep your Form 1042-S and broker statements each year. They make it much easier to prove tax paid or reconcile figures later.

Sources

1. Inland Revenue Department: Comprehensive Double Taxation Agreements concluded
2. 26 U.S. Code § 871（LII）
3. 26 U.S. Code § 1441（LII）
4. Inland Revenue Department: Profits Tax

Facts checked on 16 October 2026. This article is general information only and is not tax, legal or investment advice.

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