The Importance of Double Taxation Agreements (DBA)
German investors have the opportunity to reclaim overpaid foreign withholding tax on dividends through the double taxation agreement (DBA) between Germany and the source country. These agreements typically limit the amount of withholding tax to 15 percent. If a higher tax has been withheld, investors can claim the difference back.
Applying for a Refund
To recover the overpaid tax, an application must be submitted to the foreign tax authority. Specific forms are required for this, which vary by country and are often available on the websites of the respective tax administrations.
Offsetting in Germany
The tax paid abroad is offset against the German withholding tax up to a rate of 15 percent. Amounts exceeding this can only effectively reduce the tax burden through a refund.
Practical Tips for Investors
- Check the double taxation agreement of your target country to know the permissible withholding tax rates.
- Submit a refund application for excessive withholding taxes with the correct forms.
- In complex cases, consider using tax advice or specialized service providers.
An example of a stable dividend stock is Pepsico, which has continuously increased its dividend for over 50 years. Despite the attractive yield of about 4.4 percent, investors should be mindful of potential withholding taxes and reclaim them.
Overall, understanding the recovery of foreign withholding tax helps optimize the net return from international dividend investments and avoid unnecessary tax losses.