Asset managers, pension funds and other financial institutions with an obligation to ensure maximum yields for their clients are continually searching for ways to increase returns on capital investment. Yet many of these firms are unaware of the tax advantages available for non-resident investors through international treaty networks in place in most countries.

Most public companies pay dividends to their shareholders, which are generally subject to a withholding tax in the country of issuance. But determining the right amount of tax a shareholder should ultimately pay is a complicated matter, which depends on factors such as the location of the paying company, the domicile of the recipient, as well as the percentage holding, the type of institution and so on. Therefore, for an identical portfolio, held in two separate geographical locations, or by two different types of institutions, net returns can differ vastly.

In order to attract overseas investment and to ensure investors need not pay tax on the same investment twice, countries have created an extended range of bilateral Double Taxation Treaties, which in many cases allow for non-resident investors to benefit from lower withholding tax rates.

However, monitoring these treaty rates is a complex task. Governments' fiscal policies often change, not all countries have treaty rates in effect, the definition of the status of the investor may be difficult to determine, treaties may simply be too difficult to understand, or tax authorities may not update their effective rates in a timely way after changes have been announced.

To compound matters, there is no standard method of achieving the correct net payment. In some cases the dividend will be paid net of the local standard tax and the beneficial owner must apply to receive a refund of the difference. In other cases the application has to be made in advance of receipt of payment. Often a refund is made within months; in other cases it may take years.

Many investment firms have traditionally ignored the withholding tax treaties, leaving their clients unaware of their entitlement to tax reclaims. As a result, it is estimated that billions of dollars go unclaimed every year simply because investment managers do not reclaim this tax.

However, by facilitating the international investor's entitlement to a reduction in withholding tax, either at source or by making a reclaim on the tax already paid, well-informed managers can make use of these bilateral tax treaty agreements to dramatically increase true yields. Increasingly, managers are factoring in these rates when deciding on their overseas portfolio asset allocations in the first place.

Owing to the complexity and constantly changing variables, many data providers and investment firms have decided that outsourcing this task to specialised firms is the best way of ensuring data integrity and accuracy. Datavenue’s Tax Rate Data Products track the relevant treaty rates of more than 100 countries and provide information and early notification on dividends and bonds pay and receive rates, Double Tax Treaties, and other conditions that may enable reductions in tax liability.