How does taxation of foreign dividends work?

Foreign dividend taxation in Minnesota is a complicated topic. Generally, a dividend is defined as a distribution of corporate earnings to shareholders. Minnesota has a corporate income tax, and when a foreign corporation pays dividends to shareholders, the dividend is taxable in Minnesota if the shareholder is a resident of the state. If a foreign corporation pays a dividend to a Minnesota resident, the amount of the dividend may be subject to a federal Alternative Minimum Tax, and it may also be subject to a foreign withholding tax. In addition, the amount of the dividend may be subject to a Minnesota income tax. The amount of tax due depends on whether the foreign corporation is considered a "controlled foreign corporation" and whether or not the foreign corporation has an Office of Foreign Assets Control (OFAC) license. If the foreign corporation is not a controlled foreign corporation, the dividend is subject to the same Minnesota income tax rate as earned income. If the foreign corporation is a controlled foreign corporation, the dividend is subject to the same Minnesota income tax rate as passive income. Additionally, if the foreign corporation has an OFAC license, the dividend may be subject to a 5% foreign withholding tax. In summary, taxation of foreign dividends in Minnesota depends on whether or not the foreign corporation is considered a controlled foreign corporation, and whether or not the foreign corporation has an OFAC license. If the foreign corporation is not considered a controlled foreign corporation, the dividend is subject to the same Minnesota income tax rate as earned income. If the foreign corporation is a controlled foreign corporation, the dividend is subject to the same Minnesota income tax rate as passive income. And, if the foreign corporation has an OFAC license, the dividend may be subject to a 5% foreign withholding tax.

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How does taxation of foreign dividends work?

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