Taxation of investments and international dividends at HeyTrade
We answer the most frequently asked questions about income tax and double taxation on US and Canadian dividends.
The tax return campaign starts at the beginning of April. If you invest in the stock market, filling out your tax draft can be a tedious task (to put it mildly), but your choice of broker can make things a lot easier for you. For example, if your investment platform has a national partner for the custody of assets, you will not have to report your stock market operations to Hacienda (Spain’s tax agency), as these will automatically appear in your tax report draft for you to validate them. Pretty handy, isn’t it?
How to prepare your tax return if you invest with HeyTrade
At HeyTrade we share with the Spanish tax authorities all the information related to your trades, from profits to withholding taxes. This saves you from having to fill in form 720, which is used to declare your foreign assets and rights. Note that filing this form is mandatory for clients of international brokers with a custodian outside Spain.
If you invest with HeyTrade, all your operations will automatically appear in your income tax return.
What do you need when filing your tax return?
Since we will report all your trades and withholdings to the tax authorities, you will only need to check that the information in your draft is correct and matches your tax statement (informe fiscal).
How and when to get your tax statement
HeyTrade will send you your tax statement by email before the tax return campaign starts.
How double taxation on dividends works with HeyTrade
Dividends are taxed. Therefore, if you invest in foreign shares, you may have to pay taxes on dividends both in Spain and in the country of origin of the security. This is known as double taxation on dividends. However, in order to promote foreign investment, Spain has several bilateral agreements that allow investors to benefit from a reduction of taxes on their international dividends.
Below, we explain what you need to do to enjoy a more favorable tax treatment if you invest in US and Canadian stocks, and how withholding tax on REITs works at HeyTrade.
Avoiding double taxation in the US: the W-8BEN form
As a general rule, persons resident in Spain who purchase U.S. shares are subject to a 30% tax rate on their dividends.
To benefit from a reduction, you have to prove that you do not reside in the United States by means of the W-8BEN form of the US Treasury Department (IRS).
If you file form W-8BEN, the dividend withholding tax on your U.S. securities will be 15% instead of 30%.
Dividend withholding on U.S.-issued REITs works a little differently. You will find specific information on these investment vehicles below.
How to fill in the W-8BEN form with HeyTrade
To speed up your trading, filling out the W-8BEN form is part of the HeyTrade registration process. During onboarding, we will fill out the form automatically, so you only need to validate the information and digitally sign the file.
In addition to verifying that your personal details (name and ID) are correct, the most important thing is that the form contains a Spanish address.
Once signed, you will be able to invest in US stocks without having to worry about double taxation. In addition, HeyTrade will take care of managing the form, storing it and sending it to the IRS if requested. The form is valid for 3 years. When it’s your turn to have it renewed, we will notify you by email.
Avoiding double taxation in Canada: Form NR-301
With some exceptions, the dividend withholding tax applicable to Spanish residents who purchase Canadian shares is 40%. Like the United States, Canada has a bilateral agreement with Spain that avoids double taxation and limits this withholding tax to 15%.
To benefit from a tax reduction on Canadian dividends from 40% to 15%, it is necessary to file form NR-301.
How to fill in the NR-301 form with HeyTrade
When you purchase a Canadian share on HeyTrade, you will need to request the NR-301 form from us by email. Once completed and signed, you will need to return it to email@example.com. HeyTrade will process the form and store it securely.
In case the Canadian Revenue Agency (CRA) requests a copy of the document, we will provide it to them.
The form is valid for 3 years. We will notify you by email when it is time to renew it.
Why is there a 30% withholding tax on US REITs?
As real estate investment assets, it is difficult to distinguish whether a person investing in REITs is receiving dividends or capital gains.
In the case of REITs issued in the U.S., this difference is resolved on a year-over-year basis, at which time the REITs analyze their earnings to determine whether the distribution they have made to their shareholders originates from their own business or from the divestiture of their assets. After this reclassification process, if applicable, part of the 30% initially withheld is returned.
Our custodian applies the maximum withholding tax (of 30%) so that HeyTrade clients are covered in case dividends from a US-issued REIT are categorized as capital gains. In any case, this is a withholding tax due to the peculiarity of this market. At HeyTrade we do not apply hidden commissions for the purchase of REITs or any other product.
Some of the available REITS on HeyTrade are: Realty Income, Armour Residential and AGNC Investment Corp.
If you have any questions, please send us an email to firstname.lastname@example.org. We will be happy to help you.