When you receive a dividend from an ADR, foreign withholding tax and resident withholding tax will usually be deducted from the total dividend amount. We make sure this tax is paid before the dividend is paid into your Sharesies Wallet. Here’s how it works:
Foreign withholding tax
If foreign withholding tax (WHT) applies in the country the company is located in, WHT is deducted from your dividend at the highest non-resident withholding tax rate 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 (IRD) as resident withholding tax (RWT).
Since your dividend has already had WHT deducted from it, IRD will credit some of your remaining 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 allowed for the full amount of the WHT paid.
In some instances, the NRWT 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 tax 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 hold more than $50,000 NZD in ADRs (which count as foreign investments) then your investment may be subject to FIF (Foreign Investment Fund) tax rules.
If this is you, Sharesies can’t handle your FIF tax obligations for you and you should seek professional tax advice.