No. of Recommendations: 1
If you own foreign stocks or funds, you should be aware of the wacky world of foreign dividend taxation.

Imagine, for example, that you owned four stocks, one each in China, Taiwan, Korea, and Japan. Each stock paid you a $100 dividend. How much would you pay in taxes on each div (assuming a 28% Federal bracket and ignoring state/local taxes)?

China-$15. China has a tax treaty with the US, which means divs are taxed at a qualified rate. Further, China does not withhold taxes from dividends paid to foreigners.

Japan-$23.50. The divs are still qualified, but Japan withholds 10% at the source. I'm assuming the div is deductible here, so you pay the 15% taxes only on the $90 you actually receive. This dividend may also be creditable (better, up to $300 single/$600 married) or nondeductible (worse, eg if the div was paid to your Roth IRA).

Korea-$38.38. Same as Japan, but Korea withholds 27.5% in taxes.

Taiwan-$42.40. Withholds at 20%, and does not have a tax treaty with the US that would allow the div to be qualified. Add state taxes and you could be paying over 50% here. Ouch.

Not only is this stuff complex, it's constantly changing. Japan's withholding rate dropped to 10% from 20% last year, for example. I think it's going back up in 2008.

Just thought I'd pass this on. I would double check the taxes reported on your 1099 on any investment involving foreign divs...this seems an easy place for errors to be made (I may have made some as well, but I think these #s are right)

Nick
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