2020 has certainly been a challenging year and very few corporates around the world will be unaffected by the COVID-19 pandemic. It’s no surprise that dividend payouts have decreased drastically and in this uncertain time, it’s difficult to predict how long this downturn will last.
Janus Henderson’s latest Global Dividend Index, published in May, warned that the impact of the pandemic for the rest of the year “will be significant” with dividend cuts already announced or likely impending and set to wipe at least 15%, or $213bn, off this year’s total payouts.
As a result, investors worldwide are seeking innovative avenues to boost performance and there has been an uptick in the exploration of dividend withholding tax recovery as a way to offset losses from the current downturn.
Because investors can claim withholding tax retrospectively (in some jurisdictions, up to 5 years), withholding tax recovery on cross-border investment income has become a great way to bolster fund performance.
“We’ve seen a much more explorative attitude towards withholding tax recovery over the past few months. Before COVID-19, withholding tax recovery was sometimes viewed as an immaterial gain. But in challenging times, it certainly makes sense to recover as much foreign withholding tax as possible,” says Julia Bricker, USA Director of withholding tax reclaim firm, WTax.
Withholding tax recovery allows investors to recover some or all of the foreign tax suffered on offshore dividend and interest income. Investors can recoup as much as 20% of any foreign dividend income earned.
In addition, the opportunity is attractive because of the lengthy retrospective claiming periods. The withholding tax statute of limitation varies according to local jurisdiction legislation but generally falls between 2 to 5 years.
Although investors may not be able to look to the future for answers, they need only look to the past for withholding tax refunds. Based on historical foreign investments, they can provide a much-needed income injection today.
To explore withholding tax opportunities, you can download the DTT withholding tax guide which outlines the various claiming opportunities and periods.