What is foreign withholding tax?
Foreign withholding tax is the tax a foreign company's home country takes off the dividend before it reaches you — it is the company's country that decides, not the exchange you bought on. With a tax treaty the rate is typically 15 % (Denmark, Germany, the Netherlands and most of Europe); without the right paperwork it can be 25–35 %. The US then taxes the dividend as usual but lets you claim a foreign tax credit for the tax already paid, generally up to the treaty rate. Up to $300 ($600 married filing jointly) of foreign tax can be claimed directly on your return; above that you file Form 1116.
The money goes from the company straight to your account.
How it works
- Deducted at source. A €100 dividend from a Danish company arrives as €85 (or €73 if the 27 % statutory rate was applied and nobody claimed the treaty).
- Credit, not deduction. The credit reduces your US tax dollar for dollar, up to the US tax due on that foreign income. A deduction only reduces income and is almost always worse.
- Not inside an IRA. Foreign tax withheld on dividends inside an IRA or 401(k) cannot be credited — it is simply lost. Many investors therefore hold foreign dividend stocks in taxable accounts.
- ETFs pass it through. A US-listed international ETF reports your share of foreign tax paid on the 1099-DIV (box 7), and you claim it the same way.
- Over-withheld? If a country took more than the treaty rate, the excess is not creditable — you must reclaim it from that country's tax authority, which can take a year or more.
- Some countries take nothing. The UK withholds 0 % on dividends; Ireland 25 % unless the right form is filed.
The worked example
You own Novo Nordisk shares through a US broker and receive a $1,000 dividend. Denmark withholds 15 % under the treaty: $150. The dividend is qualified; your US tax at 15 % is $150. The foreign tax credit of $150 wipes it out: total tax $150, not $300. In an IRA: the $150 Danish tax is gone, and there is no US tax to offset it against.
Figures for 2026 from irs.gov (Rev. Proc. 2025-32 and IR-2025-111), checked September 2026. Your state may tax the same income again. Kiggo does not calculate your tax — your broker reports to you on Form 1099, and the IRS, your state and a tax professional decide.
The typical beginner's mistake
Holding European dividend stocks inside an IRA "because it is tax-free" — and losing 15 % of every dividend to a foreign government, with no way to get it back.
How you see it in Kiggo
Kiggo shows a company's dividend yield gross, as the company reports it, and shows which country a company is from. What reaches you after withholding depends on the treaty and your broker's paperwork. Kiggo does not calculate your tax.
Related terms
Frequently asked questions
How much foreign tax is withheld on dividends?
Usually 15 % from treaty countries when the broker has your paperwork on file; the statutory rate without it is often 25–35 %. The UK withholds nothing on ordinary dividends.
How do I claim the foreign tax credit?
Foreign tax of $300 or less ($600 married filing jointly), all from 1099 forms, can be claimed directly on Schedule 3. Otherwise file Form 1116. The credit is limited to the US tax on that foreign income.
Can I get a credit for foreign tax withheld in my IRA?
No. Tax withheld inside a tax-deferred or tax-exempt account cannot be credited or deducted.
Kiggo explains — Kiggo does not advise. We never tell you what to buy or sell, and key figures can only be compared between companies in the same industry. The decision is yours. Last updated 2026-09-22.
Written by Claus Frisch, founder of Kiggo. Not an adviser, not a bank — Kiggo explains, you decide.
