US investors hold vast and growing portfolios of foreign equities, with international diversification remaining central to institutional strategy. Yet according to new research from TaxTec, almost 20% of reclaimable withholding tax globally is still going unrecovered, leaving billions of dollars rightfully owed to investors sitting unclaimed.
With inflation, interest rates, geopolitical tension and shifting trade policy all weighing on markets, institutional investors are leaning harder into diversification and disciplined portfolio management.
According to TaxTec, fiduciaries are under growing pressure to prove every available source of return is being captured, and operational efficiencies, not just asset allocation and stock selection, are increasingly part of that conversation.
Despite the strong run enjoyed by US domestic equities, institutional investors continue to hold trillions of dollars in foreign portfolio securities, according to US Treasury TIC data. That exposure matters: US markets have become heavily concentrated in a small number of mega-cap technology names, and foreign holdings across 46 markets offer a counterbalance spanning developed and emerging economies.
Dividends are a bigger part of that story than headlines about capital appreciation suggest. Foreign payouts also tend to be more generous than the US norm, which makes recovering withholding tax (WHT) on those dividends increasingly significant. Overseas dividend payments are typically taxed at source, though thousands of bilateral treaties allow eligible investors to reclaim some or all of it.
The process, however, remains operationally complex, and TaxTec’s research shows that just under 20% of reclaimable WHT worldwide went unrecovered as of 2025.
To quantify the impact, TaxTec modelled a proxy for the MSCI Global non-US Index, one of the most widely used international equity benchmarks. Factoring in each constituent’s domicile, index weighting and applicable treaty rates, the analysis found that investors who fail to reclaim eligible WHT forgo around 23 basis points of annual return, equivalent to roughly 10% of typical foreign dividend income.
Crucially, these are returns already legally owed to investors, not gains dependent on market timing or stock picking, and once the statute of limitations on a jurisdiction’s reclaim window passes, the money is gone for good.
While some custodians and specialist providers already automate WHT recovery effectively, practices remain inconsistent industry-wide. As foreign allocations grow within institutional portfolios, TaxTec’s research suggests recovering reclaimable tax should be treated as a matter of investment governance, not a back-office afterthought, particularly when the sums at stake compound meaningfully over time.
Read the full TaxTec post here.
Copyright © 2026 RegTech Analyst
Copyright © 2026 RegTech Analyst
