Withholding tax

Withholding tax is collected by the payer, or by a broker or custodian acting as "withholding agent", at the moment a payment is made. The recipient receives the net amount. For non-US holders of US preferred stock, the relevant tax is US federal withholding on distributions.

The default US rate and treaties

The IRS states that most types of US-source income received by a foreign person "are subject to U.S. tax of 30%", generally withheld at source. A tax treaty between the US and the recipient's country of residence may reduce the rate or give an exemption (IRS: NRA withholding). To claim treaty benefits, an individual normally gives the withholding agent a Form W-8BEN.

How it applies to digital credit

STRF, STRC, STRK, STRD, SATA and SATS are issued by US corporations, so distributions to non-US holders generally fall within the US withholding regime. STRE is also issued by Strategy, a US company, although it is listed in Luxembourg and pays in euros. Holders should check how their custodian treats it.

Two points need care:

• Return of capital. Strategy has said it expects its preferred distributions to be treated as return of capital for US tax purposes (FWP, 24 August 2026). Whether and how a broker withholds on such distributions depends on the broker's procedures and on year-end reclassification.
• Daily and semi-monthly payments. Withholding applies to each payment, so frequent small payments each have tax deducted.

UK-listed preferred shares, such as The Smarter Web Company's MORE, are outside the US regime. They are subject to UK rules instead.

What to check

• Whether your broker holds a current W-8BEN for you
• The treaty rate your broker applies
• How the broker reports any later reclassification

Nothing here is tax advice.