Do I need to pay tax on US equity derivatives?

Following regulations issued by the US Internal Revenue Service ('IRS') under Section 871(m) of the US tax code, all non-US resident holders of US equity derivatives (including CFDs) are required to be taxed on dividend income derived from trading on these instruments.

For more information from the IRS website click here.

i) What do I need to do?

If you want to continue or start trading on in-scope instruments from any of your accounts, please complete the W-8BEN form found in your Members Area.

  • From the menu bar in your Members Area, click on the tab “Account”
  • From the Profile tab, click on the option “Notifications”
  • Click on the option “W-8BEN Form”
  • Fill in the form and e-sign it

ii) Which products are affected?

This withholding tax applies to CFDs on shares in US incorporated companies, and non-qualified indices which contain US equities. There is, however, an exemption for CFDs on qualified indices such as (non-exhaustive):

  • Dow Jones Industrial Average
  • S&P 500
  • NASDAQ 100
  • Russell 2000

iii) Which positions does this apply to?

The regulations apply to long (buy) positions on in-scope instruments opened on or after 1 January 2017 (and are still maintained open when the regulations come into force), as well as any new positions on in-scope instruments from 1st January 2022, onwards. These instruments include, among others, any US listed equities.

iv) What is Section 871(m)

The IRS issued regulations under section 871(m) that ensure non-US holders of US equity derivatives are taxed on dividend income like non-US holders of the underlying equities. Dividend adjustment on derivatives that reference US equities are 'dividend-equivalent payments' therefore considered to be US-source dividend income. Accordingly, dividends paid for instruments that reference US equities are deemed to be US-source of income and are taxed as required per the US tax regulations.

By default, all individuals are subject to 30% withholding tax under the US regulations. However, the US signed tax treaties with certain countries that may entitle you, where eligible, to a reduced rate of withholding tax. For example, a UK resident may be eligible for 15% rather than 30% withholding tax.

v) What happens to the information I provide?

The information you provide in the W-8BEN form will be safely stored by us in accordance with our Privacy Policy and will only be shared if there is a regulatory requirement to do so as part of an IRS audit.

vi) What is the effect of filling in the form?

In order for us to apply the relevant rate in accordance with the treaty you may be under, you should fill in the form to claim a reduced rate of withholding under your applicable treaty.

Failing to provide the form within the requested time frame could result in restrictions applied to your trading account as well as a withholding tax of 30%, regardless of the bilateral treaty that the US may have signed with your country.

As per the US regulations, our customers are required to provide tax forms to document their status. With regards to the investment platform, the customers receive the value of the dividend after tax deductions.

vii) Expiration of Form W-8BEN and Change of Circumstances

Generally, a W-8BEN form remains in effect for a period starting on the date the form is signed and ending on the last day of the third succeeding calendar year, unless a change in circumstances makes any information on the form incorrect. For example, a W-8BEN form signed on September 30, 2020, remains valid through to December 31, 2023.

Change in circumstances.

If a change in circumstances makes any information on the W-8BEN form you have submitted incorrect, you must notify us within 30 days of the change in circumstances and you must file a new W-8BEN form or other appropriate form.

For example, if you become a U.S. citizen or resident alien after you submit a W-8BEN form, this is considered as a change in circumstances, and you are no longer subject to the 30% withholding rate. In such case, you must notify us within 30 days of becoming a U.S. citizen or resident alien and you may be required to provide a W-9 form.

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