For a non-US person (or offshore hedge fund for example) who has never been US and has no any relationship with US, if he open a stock brockage account with any brockage firm in US (such Interactive Brokers, etc), my understating is that the interest income is US tax free but dividends is not US tax free. How about stock capital gain? Is it US tax free as well? Of it is subject to US capital gain tax? Does any one have any experience/idea?
all cap-gains from stock trading for non-resident aliens is tax-free. http://www.irs.gov/publications/p519/ar02.html
Interest income? Stocks, futures, options, capital gains? Not taxed, this is why many people denounce (quit) their US citizenship. Bonds?, you don't pay taxes in the US. Bond mutual funds, or dividends? yes you are taxed.
a non US person will have to show a residency status before being allowed to open an account in bank or brokerage. Do not know about the Hedge Funds.
How about if a non-US person invests in a Hedge Fund (such as become a limited member of a fund in LLC/LP form), will he receive a K1 or any other tax related form? Does he subject to US capital gain tax? So for a nun-US person, what are the differences between opening a stock account with US brokers vs. investing with US hedge fund in US capital tax point of view?
If it's with an onshore fund, he'll receive a k1 most likely and will be taxed as a resident, because he 'will be doing business with a us company'. The distinction is that trading your own account from your home country is work that your doing for yourself offshore, whereas having other people trade your acct from the US is now an onshore business regardless of where you live. This is why most onshore funds setup offshore subsidiaries. A foreign person with an offshore fund trading US markets will not be liable for any tax.
What if a non-US person open a stock account (under the non-US person name) with an US broker firm and allow a US-person (through limited power of attorney) to trade it? In this situation, does it considered [doing business with a us company] and need to pay US capital gain as well? Thanks.
for sure if the us-person is located offshore there would be no tax liability, just as trading with an offshore company US controlled or not. the important aspect here is WHERE the business is taking place, not by whom. having said that, there is a specific exception for trading stocks/commodities under an 'agent'. this can't be an organized company structured like a mutual fund where they trade their account and you're an investor. what IS possible though, is to have US investment advisers. so yes, an individual or firm with designated power of attorney trading your account is fine. this is how most offshore funds are able to have US domiciled money managers without exposing their foreign investors to US tax liability. http://www.irs.gov/businesses/small/international/article/0,,id=96477,00.html http://www.irs.gov/businesses/small/international/article/0,,id=96409,00.html