ETF TAX REVERASL Guide: Know Your Investment Returns

Do you need to pay taxes when investing in ETFs?

When cash dividends are distributed for US stocks and ETFs, a certain amount of tax called withholding tax is deducted.

Whether through ordering under an overseas US stock brokerage or through domestic brokerage secondary commission,

Buying US stocks, stock ETFs, bond ETFs, etc., as long as cash dividends are distributed, they will be taxed.

As a foreign investor (individual and institutional), you generally will not be considered a US taxpayer by the US Internal Revenue Service if you do not meet any of the following conditions.

The US Internal Revenue Service generally considers individuals and entities that meet the following conditions as US taxpayers:

1. All US citizens and green card holders.

2. Organizations or entities established or operated in the United States.

3. Foreign individuals who legally reside in the United States:

1. Legal permanent residents holding green cards;

2. Individuals holding valid non-immigrant visas and meeting the actual residence standard in the United States (refer to the U.S. Internal Revenue Service Publication 519 Foreign Tax Guide for Aliens).

Please refer to the latest version of Publication 519 from the U.S. Internal Revenue Service:The current revision

In terms of dividend taxes, generally, the United States imposes a tax of approximately 30% on cash dividends from U.S. companies. However, if the investor's tax residence has entered into a tax treaty with the United States, the investor may apply for a lower dividend tax rate below 30%. For example, China 10%, Canada 15%, Japan 10%, Australia 15%, New Zealand 15%, etc. When investors receive cash dividends from ETFs, this tax is usually deducted in advance by the brokerage firm and is called withholding tax.

However, the taxation method for ETFs depends on the assets they hold, and dividends from some ETFs may be exempt from taxation. For such ETFs, the portion deducted in advance by the brokerage firm during distribution will be fully or partially refunded at a later point (usually at the beginning of the second year) after confirmation, but there are exceptions as well, such as TLT. You can find out how to view the refund details on Futubull at the end of the text.

Refund time and limit.

Refund timetable: key dates.

Generally speaking, the refund process is usually conducted in the first quarter of the following year. Securities firms recalculates the corresponding tax amount according to the documents provided by the upstream tax department, and then refunds the tax. Taking Futubull Securities as an example, Futubull Securities completed the refund process in February 2021, while the refund time in 2022 is from February to April. Investors should pay close attention to and plan their financial and tax affairs according to the latest timetable provided by the upstream institutions. Please note that the refund date may vary depending on the actual processing progress of the upstream institutions.

Refund limit.

Using a full refund as an example: Assuming David is a permanent resident of Hong Kong and holds an ETF that is eligible for full refund. The ex-dividend date is August 1, 2022, and David received a dividend payment of $29.83 on August 5, 2022. According to a 10% tax rate, Futubull Securities withheld $2.98 as prepayment. On April 4, 2023, David received a full refund of $2.98 in tax from Futubull Securities.

Special cases of refunds.

For certain ETF products, such as the iShares 20+ Year Treasury Bond ETF (TLT), there are specific refund rules. TLT invests in U.S. government bonds with a maturity of more than 20 years. Depending on the type of investment income, the tax treatment related to TLT should be as follows:

• Dividends.

  The dividends distributed by TLT are actually qualified interest on US Treasury bonds. For non-US tax residents, this is usually tax-free and should not be considered as ordinary income or qualified dividends, so it is not subject to dividend tax.

• Capital gains

  When selling TLT holdings, capital gains will be generated if the selling price is higher than the purchase price. The capital gains tax rate depends on the holding period. For non-US tax residents, capital gains in the US securities market are not subject to US taxation.

In addition, if non-US tax resident investors hold TLT through a brokerage, the brokerage may handle withholding tax deductions based on its own policies.

However, starting from April 2024, Futu will exempt the withholding tax on TLT dividends in US stocks. The withholding tax will not be deducted when dividends are distributed. This means that customers no longer need to wait until the beginning of the following year to file for tax refunds. However, there may be a situation where the withholding tax is automatically deducted when TLT dividends are distributed and refunded within 1-2 working days. If there are any questions about ETF taxation, please contact customer service.

Comparison of tax refund services provided by major brokerages and banks for TLT

Which brokerages and banks provide TLT tax refund services?

There are slight differences among major brokerages in terms of tax refund services and refund limits. Taking TLT as an example, the tax refund services provided by major brokerages and banks are compared from the perspectives of whether they support automatic tax refund and whether they provide full refund:

As of August 26, 2024, a comparison of brokerage and bank tax refund services and tax refund limits.

Data Source: The above data is compiled from public information. Specific data is subject to disclosure by individual securities firms and banks. The content of the above table data is for display and explanatory purposes only, and is not intended to indicate or refer to any third party. Futu does not guarantee and promise the timeliness and completeness of the related content.

How to check the tax refund details on Futubull?

1. If you receive the refunded TLT dividend tax amount, you can check the detailed TLT tax refund amount through the "Fund Details" section under "Other" in the Futubull app.

2. Operations path: Click on the "Account" tab > Click on "More" > Click on "Fund Details" > Click on "Filter" > Click on "Other" - "Other Details", as shown in the figure below.

>> The above tax-related statements are for informational purposes only and are not intended to constitute any tax advice.

Note:

The information displayed on the Futu app, website and activity pages from third-party sources is for reference only and does not constitute any recommendation.

The above content does not represent Futu's standpoint and does not constitute any investment advice related to Futu. Before making any investment decisions, investors should consider the risk factors associated with investment products based on their own circumstances and seek advice from professional investment advisors when necessary. Futu strives but cannot verify the truth, accuracy, and originality of the above content, and Futu does not make any guarantees or commitments regarding this.

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