US withholding tax on derivatives - 871 (m)

Learn more about the new regulation and what it could mean for you...

• What do I need to do?
• Which products are affected?
• Which positions does this apply to?
• What is Section 871(m)?
• What does IG do with my information?

What do I need to do?

If you want to deal on US equities from any of your IG accounts, please complete one of the forms detailed below and return it to us as soon as possible.

Private clients

If you’re not a corporate client, joint account holder, a US citizen or resident of the US, you need to complete our quick and easy electronic Form W-8BEN as soon as possible:

1. Log in to your IG account
2. Go to the ‘settings’ tab in My IG
3. Select ‘dealing US stock’
4. Answer a few questions about your tax status and e-sign

The whole process should only take a minute or two. Your information will be stored at IG and only be shared with the IRS on audit.

Joint account holders, US citizens or residents of the US, and corporate clients

Please complete the relevant form from our US stocks page and return it to clientlifecycle.ao@ig.com, or to our postal address: IG, The Marc, Tower 2 – 129 Rivonia Rd, Sandton, Gauteng, 2196

Joint account holders that are not US citizens or residents of the US should each complete a Form W-8BEN, and return both to us together.

Individual US citizens or residents of the US should complete and return a Form W-9.

Corporate clients should complete and return ONE of the following forms:

• Form W-8BEN-E — Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities);
• Form W-8ECI — Certificate of Foreign Person's Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States;
• Form W-8EXP — Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding and Reporting;
• Form W-8IMY — Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding and Reporting; or
• Form W-9 — Request for Taxpayer Identification Number and Certification

Form W-8BEN-E: Those corporate clients that are (i) resident in a country with which the US has a double taxation treaty and (ii) are making a claim under that treaty should be aware of the treaty’s Limitation on Benefits provisions and the terms within those provisions. For more information, please visit the IRS website.

Which products are affected?

This withholding applies to CFDs on shares in US incorporated companies, ETFs and non-qualified indices which contain US equities. 

There will, however, be an exemption for CFDs on qualified indices, such as:

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

The rules apply to contracts with a delta of 0.8 or greater, relative to a US underlying. However, guidance from the IRS allows a phased-in approach such that only 'delta one' products will be in scope for 2017. This includes CFD contracts. 

Which positions will this apply to?

The rules apply to any in-scope positions opened on or after 1 January 2017.  

What is Section 871(m)?

The IRS issued regulations under Section 871(m) to ensure that non-US holders of US equity derivatives – including spread betting and CFDs – are taxed on dividend income in the same way as non-US holders of the underlying equities. The new regulations achieve that by deeming 'dividend-equivalent payments' arising on derivatives over US equities to be US-source dividend income.

Generally, an individual is subject to 30% withholding tax under US rules. However, certain tax treaties that exist between the US and other countries may entitle you, where eligible, to a reduced rate of withholding tax. For example, an eligible resident of the UK is subject to 15% rather than 30% withholding. This means a UK tax resident can receive a net payment equal to 85% of the dividend-equivalent payment, as opposed to 70%.

* IG anticipates extending its current qualified intermediary (QI) status to include becoming a qualified derivatives dealer (QDD). This means that for in-scope contracts, we can receive dividend-equivalent payments without the deduction of tax. This will help us prevent the cascading the tax payments which are ultimately destined for you.