If you invest in shares of certain Publicly Traded Partnerships (PTPs), it’s important to know that they are subject to mandatory withholding by the U.S. Internal Revenue Service (IRS) under Section 1446(f) of the Internal Revenue Code (IRC), effective January 1, 2023.
These withholdings are not Hapi fees—they are a legal requirement that applies exclusively to investors who are not U.S. tax residents.
What is Section 1446(f) and how does it affect you?
Section 1446(f) of the IRC requires tax withholding when a foreign investor (W-8 account) sells or receives distributions from certain securities issued by partnerships, such as:
Publicly Traded Partnerships (PTPs)
Master Limited Partnerships (MLPs)
Some ETFs that hold these assets
What withholdings apply?
10% on total sale amount: When you sell a security subject to this rule, 10% of the gross proceeds are withheld, regardless of whether you made a profit or loss.
10% on ECNI distributions: A 10% withholding also applies to distributions classified as “Excess of Cumulative Net Income” (ECNI).
Dividends: Withholding rates on dividends may vary by country. For example:
Peru: 30%
Chile: 15%
Mexico: 10%
For MLPs with effectively connected income in the U.S., the withholding rate can be as high as 37%.
📌 Important: Dividend withholding is applied on the same day the dividend is paid. Sale-related withholding is applied one day after settlement and typically appears two days later.
Withholding Examples
Selling a PTP for $100: $10 is withheld (10% of gross proceeds).
Receiving a $100 dividend: $10 or more is withheld, depending on the type of income and your country of residence.
How do I know if a stock is subject to this withholding?
There is an official list of securities subject to Section 1446(f), which is updated quarterly. If you’d like to receive it, contact us through the Hapi app and we’ll help you out.
Still have questions?
You can read more details on the IRS official site:
You can also reach out to us directly from the Hapi app. Our team is here to help you.