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Investing in shares of American companies is an increasingly common strategy among Brazilians who plan to build wealth in the United States or who already reside in the country. Understanding how taxation works on dividends received from these companies is essential to avoid tax surprises and to organize your financial life efficiently. The rules vary significantly depending on the investor’s tax status-resident or non-resident in the US-and lack of knowledge about these differences can result in unexpected withholdings or problems with the tax authorities of both countries.
The American tax system treats dividends differently depending on the investor’s tax connection to the United States. For those planning to move to the country or already living there with a green card or another immigration status, understanding these nuances is a fundamental part of international financial planning. This guide details the main rules applicable to each situation.
What are dividends
Dividends are profit distributions that companies make to their shareholders. When an American company generates profit and decides to distribute it, shareholders receive payments proportional to the number of shares they own. These payments can occur quarterly, semiannually, or annually, depending on the company’s policy. For many investors, dividends represent a relevant source of passive income and are an important part of a long-term wealth-building strategy.
In the United States, the stock market is highly developed and diversified, with thousands of listed companies that regularly distribute dividends. Companies that make up indices such as the S&P 500 are known for maintaining consistent distribution policies, which attracts investors from all over the world interested in predictable returns.
Taxation for non-residents
For investors who are not tax residents in the United States, dividends paid by American companies are subject to a 30% withholding tax, as established by the IRS (Internal Revenue Service). This withholding is applied directly by the brokerage or financial institution before the amount is passed on to the investor.
This rate can be reduced when there is a tax treaty to avoid double taxation between the United States and the investor’s country of residence. Several European and Asian countries have treaties that reduce the withholding to 15% or less. However, Brazil does not have a tax treaty with the US for dividends, which means that Brazilian non-resident investors pay the full 30% rate on dividends received from American companies.
In practice, if a Brazilian non-resident investor receives US$1,000 in dividends, only US$700 will actually be credited to their account, as US$300 is withheld by the American tax authorities. This withholding is final and cannot be offset or refunded by the investor with the IRS, except in exceptional situations provided for in specific regulations.
The W-8BEN form
The W-8BEN form (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting) is a mandatory document for non-resident investors who have investments in the United States. It serves to prove to the IRS that the investor is a foreigner and not a US tax resident, ensuring the correct application of taxation.
This form must be completed and submitted to the brokerage or financial institution responsible for the custody of the investments. It is valid for three years and must be renewed periodically. Without the W-8BEN, the financial institution may apply additional or incorrect withholdings, penalizing the investor. Although for Brazilians the form does not reduce the 30% rate, it is essential for correct tax classification and to avoid excessive taxation.
Tax obligations in Brazil
Even with the withholding carried out in the United States, dividends received from American companies must be declared in the Brazilian Income Tax, if the investor maintains tax residency in Brazil. The income must be reported in the appropriate sections of the annual tax return, according to the classification applicable by the Receita Federal.
Brazilian legislation provides mechanisms to avoid double taxation in certain situations, but the absence of a specific treaty with the US makes offsetting more limited. It is essential to have the support of an accountant or tax specialist familiar with the legislation of both countries to ensure proper compliance with tax obligations.
Taxation for US residents
For those who are tax residents in the United States-whether by holding a green card, American citizenship, or by meeting the substantial presence test-dividends are included in the annual tax return and are classified into two main categories that determine the applicable rate.
Qualified dividends
Qualified dividends receive preferential tax treatment and are taxed at the same rates as long-term capital gains. These rates are 0%, 15%, or 20%, depending on the taxpayer’s total income bracket. For a dividend to be considered qualified, the stock must have been held for a minimum period-generally more than 60 days within a 121-day window around the ex-dividend date.
In practice, most dividends paid by large American publicly traded companies qualify for this preferential treatment, provided the investor meets the minimum holding period. This makes qualified dividends particularly attractive from a tax perspective, especially for investors in lower income brackets, who may benefit from the 0% rate.
Ordinary dividends
Ordinary dividends are taxed as regular income, following the progressive brackets of the federal American income tax, which range from 10% to 37% depending on the taxpayer’s taxable income. Dividends from REITs (Real Estate Investment Trusts) and certain investment funds generally fall into this category, as do dividends from shares held for less than the period required for qualification.
The difference in taxation between qualified and ordinary dividends can be significant. A taxpayer in the highest income bracket, for example, would pay 20% on qualified dividends, but up to 37% on ordinary dividends-a 17 percentage point difference that directly impacts the net return on investment.
The 1099-DIV form
US tax residents receive annually the 1099-DIV form, issued by brokerages and financial institutions. This document details all dividends received during the fiscal year, breaking down amounts of qualified and ordinary dividends. The 1099-DIV is essential for correctly filling out the tax return with the IRS.
State taxes
In addition to federal taxation, some US states also tax dividends as part of the taxpayer’s income. States such as Florida, Texas, Nevada, and Wyoming do not charge state income tax, making them attractive destinations for investors. On the other hand, states like California and New York apply state rates that can exceed 10%, significantly increasing the total tax burden on dividends.
The choice of state of residence, therefore, is not just a matter of personal preference, but a factor with a direct impact on tax planning. For families relocating to the United States, considering state taxation on investments is an important part of the decision on where to establish residence.
Organizing tax planning before investing in American stocks-and keeping it updated as your tax situation evolves-is one of the most effective ways to maximize the net return on investments and avoid complications with the tax authorities of both countries. Consulting professionals specialized in international taxation is highly recommended, especially for those who move between different tax jurisdictions.
Victoria Harper
Editor-in-Chief
Leading journalism and editorial content at Visto n’ Visa, Victoria helps make immigration topics clear, trustworthy, and easy to understand. Her focus is on delivering useful, human, and relevant content for people exploring new paths abroad.
