withholding taxes for non US residents

Discussion in 'Taxes and Accounting' started by lakeside trader, Jan 16, 2007.

  1. Hello,

    I opened an account with a US firm and noticed I was paying taxes on interest earned from a money market fund. I have had
    accounts at US firms before and never recall paying any kind of taxes to the US government, having filed a W8BEN form. But then I never held a money market fund until I went with that particular firm.

    I contacted them they said these taxes are due by non residents. I find this strange. My understanding is withholding taxes is when there is no tax agreement between the US and your country or you failed to report taxes as a US citizen.
  2. dac8555


    you probaby fileld out a W-8BEN if you are a non-us citizen.. This is for non-us benaficial owners.

    Uder that you are only required to pay taxes on divedends or cupons from bonds payed. Since a money amrket account is esentialy a short term bond account, you would pay taxes on it.

    This is MUCH better than the average US citizen in the states that has to pay big taxes on the gains from your investments. I love the w-8 BEN setup. I am a US Citizen, but trade through an offshore corporate account of which i am not the beneficial owner. So my tax rate is virtually nil.

    However if you are a US citizen simply livig abroad, all standard US tax laws still apply.
  3. But I am already paying taxes in my home country. I never paid US taxes on interest earned on cash balance . Isn't the purpose of the W8BEN form making sure there won't be any double taxation if there is a tax treaty between the US and your home country?
  4. Except when the corporate account "pays" you your profits (when you repatriate your earnings), aren't you then susceptible to your ordinary income tax bracket? (assuming you live in the US)

    That's certainly a huge advantage. I've thought about this structure before, essentially it will allow you pay 0 taxes on your gains as you build your base (as opposed to being taxed every year). Then when you extract the capital, you can do so in whatever timeframe benefits you best as per your current tax situation (almost like a traditional IRA at retirement). This is all of course assuming one maintains a very trustworthy offshore operation through which one is not the beneficial owner..

    Could the corporate account pay you your trading profits in the form of dividends as well, thus benefiting from the lower rate?
  5. Aaron


    You don't say what country you are a resident of or what country you are a citizen of and whether you have a US social security number (SSN) or Tax ID number (TIN). But... If you have US TIN and if your country of residence has a tax treaty with the US that indicates a lower (or no) withholding amount, and if you file a W-8BEN with the money manager to claim those income tax treaty benefits then you should have a lower (or no) withholding on your money market income. Otherwise there should be a 30% withholding on your money market income if you are a non-US citizen. The withholding is automatically paid by the money manager to the US government out of your account.

    If you have tax withheld on your US income, you'll get a statement to that effect and in many countries that tax paid in the US can offset or reduce the income taxes you pay in your home country.

    For more information I would refer you to the instructions for the W-8BEN form at the IRS.gov website: www.irs.gov/pub/irs-pdf/iw8ben.pdf

    Aaron Schindler
    Schindler Trading

    P.S. I'm not a international tax attorney, but I've come across this issue in managing money at Schindler Trading. On the advice of our CPA, for non-US citizens who don't have US TIN's who invest in our investment fund, we withhold on interest income (but not on capital gains). Our fund is US domiciled and we have international investors.
  6. Who is the owner of the stock of that foreign corporation which is doing the investments?
  7. I am a resident of Switzerland. I have a TIN but don't use it on the forms. Never have. I am non US anyway (EU passport).

    Do I need to use the TIN and the W8BEN form to avoid withholding ? This is what you seem to imply Aaron ? Again never used the TIN before and never paid taxes on interest earned on cash. Maybe the money market fund makes all the difference.

    BTW the same firm, sent me one of my statements in an unsealed envelope! What would you do in such instance, besides closing the account?
  8. Aaron


    Yes, from my understanding, if you have a TIN and if Switzerland has a tax treaty with the US that gives you reduced or no withholding on interest, then file a W8-BEN with the money manager to claim that benefit.

    If they don't then reduce your withholding, try to educate them, otherwise you may choose to move your account.

    Let us know how it turns out.

    Aaron Schindler
    Schindler Trading

    P.S. Regarding the open envelope -- if it is just bad adhesive I wouldn't make too much of it, but if it happens regularly I'd be concerned.
  9. dac8555


    i live outside the US...so i only report income above a certain level. but in my country there are ways of taking care of that too. i essentially run a consulting company of which i am not the owner (my wife is...who is a non-US citizen) so i only have to pay local taxes.

    Luckily...here is is REALLY easy to write everything off. so my effective income tax rate is very close to zero.
  10. txtrader4


    dac8555 wrote:

    <b>I am a US Citizen, but trade through an offshore corporate account of which i am not the beneficial owner. So my tax rate is virtually nil.</b>

    dac8555, do you recall approximately how much it cost to set up an offshore corporate account?

    Also, how did you find people that you could trust enough to become the "beneficial owner".

    #10     Feb 2, 2007