What is the default US withholding rate without a treaty?

30%. US-source fixed, determinable, annual, or periodical (FDAP) income — dividends, interest, royalties, rents — paid to a foreign person is subject to a flat 30% withholding tax under IRC Sections 1441 and 1442, unless a treaty or a Code exception reduces it.

How much can a tax treaty reduce withholding on dividends?

It depends on the specific treaty and your ownership stake. A common pattern reduces portfolio-dividend withholding to 15% and direct-dividend withholding (for a corporate shareholder owning a large percentage of the payer) to 5% or even 0%. Interest and royalties are frequently reduced to 0% under many US treaties.

Do I have to file a US tax return to claim treaty benefits?

Usually not for passive FDAP income. You claim the reduced rate at the source by giving the withholding agent a valid Form W-8BEN (individuals) or W-8BEN-E (entities) before payment. If too much was withheld, you file Form 1040-NR or 1120-F to claim a refund.

What is a limitation on benefits clause?

A limitation on benefits (LOB) provision is an anti-treaty-shopping rule in most modern US treaties. It denies treaty benefits to entities that don't have a genuine economic connection to the treaty country — you must satisfy an objective test (like publicly-traded, ownership/base-erosion, or active-trade-or-business) to qualify.

BACK TO RESOURCES

Tax Treaty Planning

US Tax Treaty Benefits: How to Cut Withholding on Dividends, Interest, and Royalties

A US income tax treaty can drop the 30% default withholding on your US-source dividends, interest, and royalties to as low as 0%. Here's how the reductions work and how to actually claim them.

SMAART Tax Team

February 10, 2026

7 min read

|Reviewed by Ray Dominguez, EA, USTCP