An easy question for any U.S tax guru's living in LOS....

[advancebooking]

I'm an aussie trying to register for an International trading account as I might want to buy shares in the U.S.

The broker is asking me to sign a W-8BEN form 'cert of foreign status of beneficial owner for U.S tax wtihholding'.

I understand that its beneficial for me to sign this as I will then only pay 15% withholding tax instead of 30%. Is this correct?

If I go ahead and sign this and do not end up going ahead and buying shares etc, is the IRS going to be sending me letters to my oz address? What about after I have bought and sold shares? Ive read that they are an anally retentive organisation and don't really want to be corresponding with them. Will this ever be the case once the broker sends the form off?

thanks

[dddave]

I'm not just being fresh when I say there is no such thing as an easy IRS question. The US Tax Code Manual is a foot thick. Even if you ask a question directly to the IRS, they refuse to guarantee accuracy of their response and will penalize you if you rely on it and make an error.

I would suggest you do some deep research on the internet. Sorry not to be more helpful.

[JimGant]

I understand that its beneficial for me to sign this as I will then only pay 15% withholding tax instead of 30%. Is this correct?

Probably, but I'd have to look at the US/Oz tax treaty. But all the treaties I've ever reviewed call for less than the flat 30% withholding, which your broker would be required to withhold in the absence of your filing a W8BEN (which provides your broker information about your country of residence, so that he can apply the correct withholding rate per treaty).

If I go ahead and sign this and do not end up going ahead and buying shares etc, is the IRS going to be sending me letters to my oz address?

Nope. In fact they will never have heard of you if you don't end up buying any shares, as the W8BEN is solely for the broker's use and is not forwarded to the IRS. Now, if you do buy shares, and thus generate income, the IRS will get a form 1042-S with your name, address, and withholding amounts. You'll also get a copy so that, per treaty, you'll not be subject to double taxation, as you can flash this to the Oz revenuers for a tax credit (assuming such is subject to Oz taxation, of which I have no clue).

If this is your only US derived income, you're through with the IRS, as you're not required to file an income tax statement with them ('cause they've already got your money thru this taxation at source routine).

[el jefe]

I think Mr Gant summarized it perfectly.

The only thing I'll add is that it may not matter whether or not it is beneficial to you to sign the W-8BEN form as the broker may not open the account at all if they don't have that on file.

I haven't read the US/Australia tax treaty either so I have no idea how this affects your Australian taxes.

[taxout]

Note carefully that the test under Part II is whether you're a resident of the tax treaty country within the meaning of the treaty, not a citizen.

In any event, as said, the broker is almost certainly going to want you to file this if you're going to be buying US shares, whether or not you qualify for any treaty benefits.

[NeverSure]

If you SELL any stocks, you'll need to file a tax return. If you don't derive any income from them, you can file no return, but I'd rather file a nil return showing all zeros. Then I don't have to wait for them possibly ask me "where's your tax return?"

Dividends are treated differently from gains and losses on the sale of stock. Gains and losses are called capital gains and capital losses. If you hold the stock for more than a year, you get a lower tax rate.

If you find you need to file a US tax return, I would buy TurboTax and install it on my computer and let it walk me through the steps. Unless you are a big wheeler, you may owe from zero to just a few dollars.

You can deduct any stock losses from any gains to come up with a net gain on your tax return.

[JimGant]

If you SELL any stocks, you'll need to file a tax return. If you don't derive any income from them, you can file no return, but I'd rather file a nil return showing all zeros. Then I don't have to wait for them possibly ask me "where's your tax return?"

We're talking non resident alien (NRA) casual investors. Most won't have to file any US tax form, as any income subject to taxation (e.g., dividends) will be addressed by withholding at the source (and the related Forms 1042-S). And some income, like cap gains on stock sales, isn't even subject to US taxation, if the investor is a bonafide NRA.

[fletchsmile]

To OP,

Your understanding is correct. No you shouldn't get any follow up from IRS and your broker should deal with it. Here are a few useful links:

1) Links from my UK stockbroker, which says:

Please note, before you can buy shares listed in America through Hargreaves Lansdown you must complete a W-8BEN form. This form enables residents of the UK and other eligible countries to pay reduced rates of tax on income from their US and Canadian shares

http://www.hl.co.uk/shares/share-dealing/overseas-share-dealing-service

Eligible countries Australia Lithuania Austria Luxembourg Bangladesh Malta Barbados Mexico Belgium Morocco Bulgaria Netherlands China New Zealand Cyprus Norway Czech Republic Poland Denmark Portugal Egypt Romania Estonia Russia Finland Slovakia France Slovenia Germany South Africa Hungary Spain Iceland Sri Lanka Indonesia Sweden Ireland Switzerland Italy Thailand Jamaica Ukraine Japan United Kingdom Kazakhstan Venezuela Korea, Republic of Latvia

http://www.hl.co.uk/shares/buying-us-listed-shares/eligible-countries

2) Link from Standard Chartered Singapore website, which says:

"If you would like to claim tax treaty benefit and there is a tax treaty between your country of residence and US IRS, please input your country of residence here.

If there is no tax treaty, please leave as blank.

For example, for Singapore resident, since there is no tax treaty, please leave blank. For clarity, please check on US IRS website."

https://www.sc.com/sg/_pdf/Form_Guide_-_W8-BEN_form_guide_on_completion.pdf

The relevant US IRS publication is IRS Publication 515, shows the 15% rate for Australia, UK and Thailand on pages 39 - 41

http://www.irs.gov/pub/irs-pdf/p515.pdf

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

3) Charles Schwabb - HK broker also have this info

http://www.schwab.com.hk/public/schwab-hk-en/advice_research/us_tax_foreign_investors

I happen to be in the process of educating Stan Chart Singapore - who I also use for some US share dealing - that they should be deducting only 15% not 30%, as the person overseeing my account and the "expert" they referred to internally don't seem familiar with the rules. So have just cut and paste the links I sent to them. My UK broker is fine.

Cheers

Fletch