Taxation of Foreign traders

Discussion in 'Taxes and Accounting' started by une_mon, Jan 5, 2013.

  1. heech

    heech

    I believe government debt (t-bills) are specifically excluded from tax / withholding, precisely because the US government desperately wanted to encourage foreign ownership.

    Other forms of interest earned would be subject to taxation, however.
     
    #11     Jan 17, 2013
  2. Oh you are right.

    "Interest (including OID) received by U.S. nonresidents on obligations of the U.S. government (e.g., Treasury bills, notes and bonds) which were issued after July 18, 1984 (“portfolio interest” obligations) is generally exempt from U.S. withholding tax, as long as a Form W-8BEN has been provided to the payer."

    http://www.crossborderalliance.com/Resources/NRA Tax guide.pdf

    which is excellent.
     
    #12     Jan 17, 2013
  3. Daal

    Daal

    I didn't get taxed when I owned Citigroup corp bonds a few years back
     
    #13     Jan 17, 2013
  4. heech

    heech

    All I can say is, don't tell the IRS...
     
    #14     Jan 17, 2013
  5. The tax treaties with many countries specify a zero rate of withholding on interest payments on a reciprocal basis:

    http://www.irs.gov/publications/p515/ar02.html#en_US_2012_publink1000225127

    Zero is very common in the case of the treaties with major European countries, but the default in the case of no treaty is 30%, and you also see 10%, 12% etc, in the case of some countries.

    Dividends are taxed at a separate rate also governed by treaties, but never less than 15% that I can see. Again, some countries may allow a credit for foreign tax paid where they also tax the same dividends.
     
    #15     Jan 17, 2013
  6. Non-resident aliens are not subject to U.S. taxes on portfolio income, except for dividends, sometimes interest and MLPs. Trading futures and forex is tax free for non-resident aliens. Forex rollover interest is not really interest, it's trading gain or loss.

    Even if you are an owner in a pass-through entity in the US - like an LLC filing a partnership return - if the entire activity is portfolio income, even with trader tax status, it's not U.S. ECI or source trade or business income.

    See more on our site here
    Non-Resident-Alien
    http://greencompany.com/EducationCenter/Trader-Tax-Center/Non-Resident-Alien.shtml
     
    #16     Jan 23, 2013
  7. Daal

    Daal

    What do you mean by "sometimes interest"? Is the case above (corporate bond interest) subject to tax?
     
    #17     Jan 23, 2013
  8. I'll ask our tax attorney to help answer this question.

    Portfolio interest is tax free, which includes corporate bonds.

    But, promissory notes are different. See this site http://www.unclefed.com/AuthorsRow/Kleinman/nonresidentaliens.html

    It's always important to read the tax treaty between the U.S. and your home country if one exists.
     
    #18     Jan 23, 2013