When you receive a dividend from an ADR, overseas withholding tax and resident withholding tax will usually be deducted from the total dividend amount before it is paid into your Sharesies Wallet. Here’s how it works:
Overseas withholding tax
If overseas withholding tax (WHT) applies in the country the company is located in, WHT is typically deducted from your dividend by the depositary bank and paid to the government in the country the company is based in. WHT rates vary between countries so the rate your dividend is taxed at will differ between ADRs.
Resident withholding tax
As a NZ tax resident, 33% of your dividend needs to be paid to Inland Revenue (IR) as resident withholding tax (RWT).
Since your dividend has already had WHT deducted from it, IR will typically allow a partial credit for some of the remaining RWT tax. If there’s a treaty between NZ and the country the company is based in, credit is allowed up to the amount outlined in the treaty. If there's no treaty, credit is generally allowed for the full amount of the WHT paid. Any remaining RWT (that is not covered by a credit) is deducted from your dividend and paid to IR by Sharesies.
In some instances, the WHT rate your dividend is taxed at is greater than the credit outlined in the tax treaty, causing an unavoidable overpayment.
If this happens, it’s possible to reclaim WHT by lodging a form with the depositary bank, who then passes the request onto the foreign government. The depositary bank will generally charge a fee to carry out his service so we recommend seeking professional tax advice in this situation.
Foreign investment fund (FIF) tax
If you held ADRs that cost more than $50,000 NZD in total at any time during the year, then you may be obliged to follow foreign investment fund (FIF) tax rules set by the IR.
If this is you, Sharesies can’t handle your FIF tax calculations for you and you should seek professional tax advice.