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US withholding tax on derivatives - 871 (m)

The US Internal Revenue Service ('IRS') has issued regulations under Section 871(m) of the US tax code to ensure that non-US holders of US equity derivatives - including spread betting and CFDs - are taxed on dividend adjustments in the same way as non-US holders of the real US dividends.

IG has an obligation under this US tax regulation to obtain documentation from our clients that hold CFDs and spread betting instruments that reference US equities. Please provide us with either one of the W-8 forms listed below or a Form W-9, depending on your circumstances.

Why choose IG for dealing on US equities?

  • Online form
    Our electronic W-8BEN enables most clients to apply online via a pre-populated form, in as little as two minutes

  • We’re a qualified derivatives dealer (QDD)*
    We can pay dividend-equivalent payments with the relevant amount of withholding tax deducted

What do I need to do?

If you want to deal on US equities from any of your IG accounts, you’ll need to complete and return a simple form. Most clients can complete the form electronically, and file it with us in a minute or two. Please do this before any income event, such as a dividend adjustment, to avoid paying too much withholding tax. 

Which form you use depends on individual circumstance — either a W-8BEN form or W-9 form. Each form is valid for the remainder of the year it is signed, plus three full years after that. We will notify you when your form needs to be recertified. 

If you’re not an institutional client, joint account holder or US citizen, just follow these steps:

Log in to your IG account with your web browser

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

This will complete the form electronically, and file it with us. The whole process should only take a minute or two.

Alternatively if you are an individual US citizen or taxpayer you can access a W-9 form here.

Why do I need to do this?

Withholding-tax documentation, including W-8BEN/W-9 forms, are required under IRS rules. They allow us to apply the preferential treaty rate to dividend-equivalent payments where applicable. By completing the relevant form, the amount of withholding tax you'll pay on your dividends could reduce from 30%.

What does IG do with your information?

We will hold these forms on file and will not provide them to the IRS unless they are required as part of an IRS audit.

Which products are affected?

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

There will, however, be an exemption for spread bets and 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 both spread betting and CFD contracts. 

Which positions will this apply to?

The rules apply to any in-scope positions opened on or after 1 January 2017.  From 1 January 2018, they will apply to any in-scope positions that remain open from 2016. 

What is the new regulation?

The IRS has issued regulations under Section 871(m) to ensure that foreign holders of US equity derivatives – including CFDs – are taxed on dividend income in the same way as foreign 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.

An individual would be subject to 30% withholding tax under normal US rules. However, many countries have tax treaties with the US which allows their residents to pay a reduced rate. 

What does IG do with my information?

We will hold these forms on file and will not provide them to the IRS unless they are required as part of an IRS audit.

* IG has extended its current Qualified Intermediary (QI) status to include a Qualified Derivatives Dealer (QDD) status. This means that for in-scope contracts, we can receive dividend-equivalent payments without the deduction of tax and ensure the correct amount of withholding tax is deducted from dividend equivalent payments made to clients.