Key U.S. Federal Income Tax Considerations for Non-U.S. Holders of Hawaiian Electric Industries, Inc. Common Stock

Hawaiian Electric Industries, Inc. (HE) has released a detailed discussion regarding material U.S. federal income tax consequences for investors who are considered “Non-U.S. Holders” of its Common Stock. This summary is particularly relevant for foreign investors considering purchasing, owning, or disposing of HE’s Common Stock, especially in the context of the company’s latest offering.

Key Points for Non-U.S. Investors

• Definition of a Non-U.S. Holder: For U.S. federal tax purposes, a Non-U.S. Holder is any beneficial owner of HE Common Stock that is not a U.S. person (i.e., not a U.S. citizen or resident, U.S. corporation, certain estates, or specific U.S. trusts).
• General Tax Treatment: The discussion covers only those Non-U.S. Holders who hold Common Stock as a capital asset (generally, for investment) and does NOT address all possible tax consequences, especially for those subject to special rules (such as large shareholders, hedge investors, certain financial entities, partnerships, tax-exempt organizations, or those holding shares as compensation).
• Dividend Policy: HE states that it does not anticipate declaring or paying dividends to holders of its Common Stock in the near term. However, if dividends are paid, they will generally be subject to a 30% U.S. federal withholding tax unless reduced by an income tax treaty (subject to proper documentation). Dividends not considered as such for U.S. tax purposes will first reduce the investor’s tax basis and then be treated as capital gain.
• Effectively Connected Income: Dividends effectively connected to a U.S. trade or business conducted by the Non-U.S. Holder (and, if required, through a permanent U.S. establishment) are exempt from withholding but taxable at regular U.S. rates. Corporate Non-U.S. Holders may also face a 30% branch profits tax (or lower per treaty).
• U.S. Real Property Holding Corporation (USRPHC) Status: If HE is or becomes a USRPHC, certain adverse tax consequences may apply to Non-U.S. Holders, especially those holding more than 5% of Common Stock, or if the stock is not “regularly traded” on a U.S. securities market. This could result in a 15% withholding tax on some distributions and potential U.S. federal tax on gains from the sale or disposition of Common Stock.
• Sale or Other Taxable Disposition: In general, Non-U.S. Holders will not owe U.S. federal income tax on gains from selling HE Common Stock unless:
  • The gain is effectively connected with a U.S. trade or business,
  • The shareholder is a nonresident alien present in the U.S. for 183 days or more during the taxable year,
  • Or, the stock is a U.S. real property interest (USRPI) due to HE’s USRPHC status and the 5% ownership threshold is exceeded or the stock is not regularly traded.

  If HE is a USRPHC and its stock is not regularly traded, Non-U.S. Holders may be subject to U.S. tax and a 15% withholding tax on gross proceeds.

• Information Reporting & Backup Withholding: Dividends and sales proceeds may be subject to IRS reporting and backup withholding unless proper certifications (e.g., IRS Forms W-8BEN, W-8BEN-E, or W-8ECI) are provided. Backup withholding is not an additional tax and may be refunded or credited.
• FATCA: Withholding taxes (30%) may be imposed on certain payments (including dividends) to non-U.S. financial institutions and certain other entities unless they comply with specific diligence and reporting requirements under FATCA. Current guidance eliminates FATCA withholding on gross proceeds from sales, but investors should monitor for regulatory changes.

Important Considerations and Potential Price-Sensitive Issues

• Potential USRPHC Status: There is uncertainty regarding HE’s future status as a U.S. Real Property Holding Corporation. If the company were to be classified as a USRPHC, this could significantly impact the tax treatment and after-tax returns for Non-U.S. Holders, especially large shareholders or if the stock ceases to be regularly traded. This is material for foreign investors and could influence the attractiveness and pricing of HE’s shares.
• Dividend Policy: The current expectation is that no dividends will be paid in the near term. Investors seeking yield should note this, as it may affect demand for the shares.
• Tax Complexity and Uncertainty: The company has not sought IRS rulings on these matters, and relevant laws and interpretations may change or be applied retroactively. This introduces an element of tax risk for Non-U.S. investors.
• FATCA and Reporting Obligations: Non-U.S. investors and financial intermediaries must comply with complex reporting and certification requirements to avoid additional withholding taxes.

Conclusion

While the announcement does not disclose operational or financial developments, it highlights several important tax considerations that may significantly affect Non-U.S. investors’ after-tax returns, especially if HE is or becomes a USRPHC or if there are changes in its dividend policy. These factors could influence the attractiveness and potential valuation of the stock for foreign investors.

Disclaimer: This article is for informational purposes only and does not constitute tax, legal, or investment advice. Investors should consult their own tax advisors regarding the U.S. federal, state, local, and non-U.S. tax consequences of investing in Hawaiian Electric Industries, Inc. Common Stock, as well as the potential effects of any changes in law or interpretation.

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