30% Back Up With Holding Tax

[Digitalbanana]

I live in Thailand and trade online occasionaly on US markets.

I recently found out my W8BEN form needed renewal at a US online broker. *Until* they get the form which states I am a non US non resident person subject to no US tax, I will be subject to 30% back up withholding tax. When they approve the received form this withholding tax issue will be gone.

My question is how is the 30% back up withholding tax calculated? I thought it might be applied only to any profits on trading I made but my friend is saying it applies to the whole value of the transaction, even if the transaction was at a loss. E.g Previously purchased equity stock at 5000USD now sold at 4000USD (ie a loss of 1000USD due to market) would be further deducted 30% of the 4000USD due?

Can anyone explain how this works?

[glyph]

Why not ask your "online broker"?

[VegasVic]

I live in Thailand and trade online occasionaly on US markets.

I recently found out my W8BEN form needed renewal at a US online broker. *Until* they get the form which states I am a non US non resident person subject to no US tax, I will be subject to 30% back up withholding tax. When they approve the received form this withholding tax issue will be gone.

My question is how is the 30% back up withholding tax calculated? I thought it might be applied only to any profits on trading I made but my friend is saying it applies to the whole value of the transaction, even if the transaction was at a loss. E.g Previously purchased equity stock at 5000USD now sold at 4000USD (ie a loss of 1000USD due to market) would be further deducted 30% of the 4000USD due?

Can anyone explain how this works?

I would get some professional advise (starting with your broker as glyph pointed out) , but from what I do know going back to my days in the Casino business, there were 27 countries that had a tax-exempt treaty with the U.S. government and citzens of these countries were tax exempt and allowed to keep all their taxable winnings and take them home, while the citizens of the remaining countries of the world had 30% witheld by the casino in accordance with Federal law on taxable winnings (this situation could be different for brokerage houses but my guess would be that is similiar). I can't imagine that you would get taxed on a loss ever (even the U.S. hasn't drifted off into commisocialisim that far just yet), my guess is that at the very worst you would have 30% of any capital gains on a transaction withheld. You really need to find out what tax treaties your home country has with the U.S. government, and find out the laws for both countries.

[Naam]

if you sign the W8-BEN and are a citizen (or resident) of a country which has a double tax agreement with the U.S. no withholding tax is deducted by your bank/broker. the 30% you mentioned consist of 15% withholding tax and another 15% of so-called "back-up withholding tax". don't ask me for details or 'why', i just report facts.

in any case NO tax is applied on capital gains it is applied only on interest and dividends!

[junkofdavid2]

I live in Thailand and trade online occasionaly on US markets.

I recently found out my W8BEN form needed renewal at a US online broker. *Until* they get the form which states I am a non US non resident person subject to no US tax, I will be subject to 30% back up withholding tax. When they approve the received form this withholding tax issue will be gone.

My question is how is the 30% back up withholding tax calculated? I thought it might be applied only to any profits on trading I made but my friend is saying it applies to the whole value of the transaction, even if the transaction was at a loss. E.g Previously purchased equity stock at 5000USD now sold at 4000USD (ie a loss of 1000USD due to market) would be further deducted 30% of the 4000USD due?

Can anyone explain how this works?

I don't know if this answers your question but...

I am a non-US person trading too and have filed the W8-BEN... and as a result, my online brokers NEVER withhold tax on my trading profits, and NEVER withhhold tax on the whole value of the sale, and NEVER withhold tax for income tax. However, they DO withhold 30% (back-up withholding?) on DIVIDENDS and INTEREST PAYMENTS.

Hope this helps...

[Digitalbanana]

Why not ask your "online broker"?

I love these kind of answers:-)

But judging by all the others I did just that, asked my broker, and even my broker cannot help. Their reply was "You may wish to contact a local tax professional for the calculations". They say they must wait until the W8BEN arrives in the post. Takes up to 2 weeks to get there from SE Asia then no calculations will be needed as I will be tax exempt as I was before the last W*BEN expired (they last 3 yrs).

I let this lapse and the broker never warned the old W8BEN expired. Thanks to all the responses anyway and yes, I agree the W8BEN works and stops any taxes on my earnings, but in mean time I will have to wait or seek professional advise I guess, as no one else has experience I presume of what happens if the W8BEN has expired?

Cheers

[007]

My question is how is the 30% back up withholding tax calculated?

No worries, in years of trading with U.S. brokers as a non-resident I have never had to pay any tax on trade transactions to the IRS, but only to the tax authorities of my country of residence (in case of profits). The tax only applies to stock or bond dividends, i.e. you pay 30% withholding tax if your country has no bilateral tax treaty with the U.S., but only 15%(?) if it does. I changed my residence status recently to 'Thailand', which probably means that I'll have to pay 30%(?)

Anyway, your broker will need that form, as it is required by the IRS (U.S. tax office).

Edited September 12, 2008 by 7

[Digitalbanana]

My question is how is the 30% back up withholding tax calculated?

No worries, in years of trading with U.S. brokers as a non-resident I have never had to pay any tax on trade transactions to the IRS, but only to the tax authorities of my country of residence (in case of profits). The tax only applies to stock or bond dividends, i.e. you pay 30% withholding tax if your country has no bilateral tax treaty with the U.S., but only 15%(?) if it does. I changed my residence status recently to 'Thailand', which probably means that I'll have to pay 30%(?)

Anyway, your broker will need that form, as it is required by the IRS (U.S. tax office).

Yes, the broker got the form and told me my residence status is Thailand also since it is the only mailing address I have with them. I only ever visit Thailand as a tourist as well. Good to know it only applies to stock or bond dividends as my friend told me he got hit for 30% value of the entire value of a sale of stock, which seemed a might strange to me, perhaps he is mistaken or I misunderstood him.