The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.

US tax reforms offer foreign opportunities

US investor demand for instruments that qualify for the new, lowered taxation rate on dividend income could provide major opportunities for foreign issuers of tier 1 capital instruments and possibly a wider universe of non-US capital raisers.

By David H Salzman

IN RECENT YEARS, non-US banks raising tier 1 capital have regularly turned to the US capital markets. The instruments used, commonly known as yankee tier 1 issues, might become even more attractive with the introduction of new US tax rules.

Following the signing into law of the Jobs and Growth Tax Relief Reconciliation Act earlier this year, US individuals who receive "qualified dividend income" will be taxed on it at a maximum rate of 15%. Dividends from properly structured tier 1 capital securities can qualify for the reduced rate whether they are received directly by US individuals or indirectly through investment partnerships or US mutual funds.

The 15% tax rate on dividends is equal to the new maximum capital gains rate and almost 60% lower than the maximum income tax rate on salaries and interest income (which currently stands at 35%). Although it is perhaps premature to assess US individuals' appetite for dividend-producing securities, the wide gap between the federal income tax treatment of interest and of qualified dividends seems likely to arouse interest among investors.

Over the past decade the goal of issuer tax-efficiency has enticed financial engineers to fashion new structures for raising tax-deductible tier 1 capital.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.


Unlimited access to and

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually


Unlimited access to and, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors


Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree