US investors continue to hold vast and growing portfolios of foreign equities, with international diversification remaining a cornerstone of institutional investment strategy. Yet almost 20% of reclaimable withholding tax globally is still going unrecovered, according to new research from TaxTec.
Markets remain defined by elevated uncertainty, with inflation, interest rates, geopolitical tensions and shifting trade policy all shaping investor behaviour.
According to TaxTec, against this backdrop, institutional investors are leaning further into diversification and disciplined portfolio management, with fiduciaries under growing pressure to prove every available source of return is being captured.
Recovering reclaimable withholding tax (WHT) on foreign dividends is one such opportunity: low risk, yet capable of materially improving long-term returns. Failure to do so can cost US investors up to around 10% of their typical foreign equity dividend returns.
Despite strong US domestic equity performance, institutional investors continue to hold trillions of dollars in foreign portfolio securities, according to US Treasury International Capital data. With US markets increasingly concentrated in a handful of mega-cap technology names, foreign equities across 46 markets provide valuable balancing exposure.
Dividends are central to this picture. Reinvested dividends account for a substantial share of long-term equity returns, and foreign payouts tend to be more generous than the US norm. However, unlike domestic dividends, overseas payments are typically subject to withholding tax at source before reaching investors.
While double taxation treaties often allow much of this to be reclaimed, the process remains operationally complex, and as of 2025 close to 20% of reclaimable WHT worldwide remains unrecovered, representing many billions of dollars owed to investors.
Modelling a proxy for the MSCI Global non-US Index, TaxTec found that investors who fail to reclaim eligible withholding tax forgo around 23 basis points of annual return, roughly 10% of typical dividend income on foreign holdings. Crucially, these returns do not depend on market timing or stock selection; they are already rightfully owed. A statute of limitations also applies to reclaims, meaning unclaimed amounts are eventually lost for good.
While some custodians and specialist providers already manage WHT recovery efficiently through automation, standards across the industry remain inconsistent. As overseas allocations grow in importance, ensuring reclaimable tax is recovered should be treated as core investment governance, not a back-office afterthought. With every basis point under scrutiny, recovering tax investors are already owed represents one of the clearest ways to protect long-term returns.
Read the full TaxTec post here.
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