A complete overview of dividend taxation at brokers. Will eToro's hot new product shoot it to the top broker position?
eToro is undoubtedly one of the most popular brokers on our and the world stage. In our country, however, it has often been accused by investors of missing one important thing. Now eToro has decided to change that and has given investors an early Christmas present!
👉 If you don't know anything about eToro yet, check out their website.
Anyway, eToro enjoys a lot of popularity among investors mainly due to the combination of options that other brokers simply don't offer. Fractional shares, portfolio copying, a clear app and much more.
You can also find more in our review of this broker.
However, domestic dividend investors had one major complaint - the absence of the W-8BEN form, which the broker simply did not provide. However, they have now decided to change that and cater to their users.
What is W-8BEN?
And why is it great news especially for dividend investors? Simple - this form avoids the higher dividend taxation that has long been a thorn in the side of many investors. The US IRS (Internal Revenue Service) requires non-US residents to pay US tax on US company stock.
By signing the form, you confirm that your country of residence is indeed outside the US for tax purposes, and you will be able to tax dividend income from dividend stocks at 15% instead of the original 30%.
How to sign the W-8BEN?
If you are an existing user of the platform, then there is nothing to worry about. Simply login to the platform and a form will be provided for you to sign (if you have not already done so). The form is provided in the form of a pop-up window with a checkbox.
Is eToro the best choice now?
As always, the answer will be more complicated. Because it depends on what you expect from your broker.
eToro offers a number of tools that the competition doesn't have. Investors often appreciate the option of fractional shares, which allow them to buy only a portion of an expensive stock, for example. Although this can bring with it some complications, which I describe in this article: How to Tax Fractional Shares? Here's the answer from top experts
The broker also profiles itself as tax-free. That's really almost true. But of course, the company has to live on something. So the fee is hidden in the higher spread. But for the amounts traded by the average user, it is still a bearable percentage.
eToro is also popular among users because of its social network nature. Investors can share their purchases, analysis or even let others copy their entire portfolio. A minor drawback may be the more limited selection of titles, where, for example, Czech companies are completely absent. There is also the question of beneficial ownership of a stock, which I discuss in another of my articles on brokers: do I really own the stock? Brokers have provided the answer to a burning question for many investors
Despite the lack of a W-8BEN form, brokerage was one of the most common choices made by investors. So we can expect it to be even more popular now.
For investors who know what they want and what to expect, this popular broker has now taken another step in the right direction.
👉 If you are interested in this news, feel free to go ahead andopen an eToro account.
How does it stand up to the competition?
To make it complete, I have found for you the amount of withholding tax that other brokers have. Indeed, it seems that eToro was the last one that didn't have even lower taxation.
This is the US Internal Revenue Service (IRS) form that the client uses to confirm tax residency. This form prevents double taxation of dividends paid from the US, Canada and Australia.
If you receive a dividend from an American company, for example, instead of the usual 30% tax, you will be charged a withholding tax of 15% as if it were a dividend received from a company with Czech tax domicile.
This form is pre-populated by us for each client at the time of account opening based on the information provided in the account opening form. Should it need to be updated, the system will prompt you to do so after you log in to account management.
In the account management it is also possible to check the accuracy of the data filled in the form or to modify the data. Source:
XTB clients who invest in U.S. dividend paying companies can reduce their taxes from 30% to 15% by using FormW-8BEN
The reduced tax rate is based on the relevant double tax treaty between the US and the client's country of residence. If the client is tax resident in a country other than the Czech Republic, the reduced tax rate may vary. Source:
Dividends from Czech companies are taxed at an increased rate of 35% instead of the traditional 15%.
As for the taxation of US dividends, the basic rate is 30%. However, traders can reduce the rate by half (15%) if they fill in form W-8BEN.
Interactive Brokers supports Form W-8BEN, which prevents double taxation of US dividends. As a result, dividends from U.S. companies are taxed at the standard 15% rate. Source.
Dividends paid to individuals by companies domiciled in the Czech Republic are currently subject to a 15% withholding tax. Dividends are thus paid net and are not reported on the tax return.
For dividends from companies with a registered office abroad, it depends on whether the Czech Republic has a double taxation agreement with the country in question. In this case, it is possible to claim a credit for tax paid abroad.
Some countries have a higher tax than the Czech Republic and it is possible to claim a refund of the difference - however, due to the administrative complexity and the amount of the fee, the claim is only worthwhile for larger volumes. For example, in Germany the dividend tax rate is usually 26.375%, in the United States 15%. Source.
Dividends are taxed at 15% (in CZ as withholding tax), the same for US shares at only 15%. When purchasing shares from Trading 212, it is mandatory to fill out form W-8BEN, which prevents double taxation. Source
Disclaimer: This is in no way an investment recommendation. This is purely my summary and analysis based on data from the internet and several other analyses. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.