Buying U.S shares. What are the implications with the IRS?

[bbabythai]

Im from the nanny state of australia and based in LOS. I am considering buying U.S equities from the NYSE. Once I fill out the relevant form from my oz trading bank I will then obviously be able to comence trading. When I sell the shares and presuming I make a profit will I only have to pay tax to the aussie tax office or will I have to pay additional money to the IRS? After the transaction is over and I have paid the taxes, will I be on the IRS radar forever or are they not as anal as everyone suggests.

many thanks for any opinions on this matter.

[taxout]

Normally you wouldn't be subject to US capital gains tax on sale.

However, you'd be subject to withholding tax on any dividends paid on the shares. The normal rate is 30 percent, though you might qualify for a lower rate under the US-Australia or US-Thai Tax Treaty. You'd have to read the treaties in light of your particular tax status to know whether you qualify.

[thrilled]

Being your Australian I would figure you would need to pay the Australian treaty/ Thai.I don't understand how the U.S.

Could make you pay any taxes when you don't really have anything to do with that country except investing in American companies.Kind of strange the U.S. gets in the pockets of non Americans.

[DogNo1]

Many countries tax dividends earned in their country. I'm American but Canada taxes my earnings there at 30%, some of which I recover.

[SantiSuk]

... and withholding tax is usually deductible against any tax you would pay in your "home" country (to the extent that the US withholding tax is less than the tax liability on the gross dividend in your home country).

Buying stock/shares in countries other than your home country can result in administrative hassles if you are wanting to minimise your tax liabilities and sometimes you end up paying more than you should, illustrated by this extract from an article guiding UK taxpayers (those who are resident or domiciled in the UK) who invest in stocks/shares outside the UK.

"Unfortunately, the amount [actually charged as witholding tax by some companies in some countries] above the withholding tax rate [specified in the inter-country tax treaty] cannot be off set against UK tax. If the double taxation treaty specifies a withholding rate of 15% for UK residents, but the country routinely withholds 25%, you can only offset the 15% against UK tax.

To get back the excess, you need to reclaim it from the tax authorities in the relevant country. If you don’t, you end up paying more tax than you need to.

For a small number of countries, you can simplify things by notifying the tax authorities that you are resident in a country where you are entitled to a lower rate of withholding tax. This will ensure that your dividends are taxed at source in line with the withholding tax approved in the UK double taxation treaty.

The most important example is the US, where the default tax is 30%, but the rate for UK residents is 15%. The withholding tax on your dividends will be reduced to 15% if you complete form W-8BEN [PDF]. Most brokers will automatically get you to do this on opening an account that allows you to trade US stocks.

Most other countries are not so easy to deal with. In many cases, you will have to reclaim the overpaid tax retrospectively. This can be a major headache."

If you complete a W-8BEN, yes you will be on the IRS records. I doubt you will get an answer as to whether you "are on the IRS radar forever" since "radar" is entirely subjective - from memory the W-8BEN gives them very little info on you (you can get a form if you search the web) and I am certain it gives them no rights to extract more info from you. Clearly they will keep their records of you and can tell the extent to which you are a man of substance. The rest is down to your own level of paranoia - I have never given it a second thought myself, but I'm squeaky clean

[JimGant]

If you complete a W-8BEN, yes you will be on the IRS records.

No you won't. The W-8BEN is submitted to the withholding agent for his files and to implement reduced withholding per tax treaty, if applicable. A copy is not submitted to the IRS.

[Naam]

If you complete a W-8BEN, yes you will be on the IRS records.

No you won't. The W-8BEN is submitted to the withholding agent for his files and to implement reduced withholding per tax treaty, if applicable. A copy is not submitted to the IRS.

W-8BEN or not, witholding tax on dividends applies! double tax agreement US/OZ will most probably result that witheld US taxes can be deducted from OZ tax liability.

[blueyeshk]

Do you know if the w-8ben has to be filled out only once or every year -i remember i did it once and than Never Again maybe I missed here something

[Naam]

Do you know if the w-8ben has to be filled out only once or every year -i remember i did it once and than Never Again maybe I missed here something

most banks are satisfied with a one-time signature when opening an account. in rare cases they ask for an update. it happened to us when a compliance officer, instead of poking his nose, surfed the internet for background info on clients. he found our names and phone numbers in Florida where we lived and were liable to pay U.S. taxes being "U.S. persons" (not citizens!). we then submitted proof that we left the U.S. in 2004.

[Time Traveller]

As a non-resident alien, you will not be liable for capital gains tax on shares, but dividends from US companies will have a tax withholding of 30%.

Apart from that you have nothing to fear from the IRS.

And why would you need to pay anything to the Aussie tax office if you are based in another country?

Edited April 26, 2015 by Time Traveller

[SantiSuk]

As a non-resident alien, you will not be liable for capital gains tax on shares, but dividends from US companies will have a tax withholding of 30%.

Apart from that you have nothing to fear from the IRS.

And why would you need to pay anything to the Aussie tax office if you are based in another country?

"Based" is a hugely imprecise term in taxation parlance TT!

Dunno about Oz, but a UK resident is liable to tax on any income arising anywhere in the world, unless not domiciled in the UK. It's a reasonably high hurdle to lose your UK residence for tax purposes*. It's an even higher hurdle to lose a UK domicile.

*eg just because you are living in Thailand for 180 days plus and therefore qualifying for Thai tax residence does not mean that you qualify to be non-resident for tax purposes in the UK - it depends on days spent in the UK and ties to the UK, like family and having accommodation that you use on visits.

[JimGant]

As a non-resident alien, you will not be liable for capital gains tax on shares, but dividends from US companies will have a tax withholding of 30%.

Like most tax treaties with the US, withholding at source on dividends is capped at 15%:

With respect to taxes on investment income, the [uS-Oz] Convention provides that the tax at source may not exceed 15 percent on dividends.... (except for certain dividends derived from real estate holdings, which can be up to 30%)

That is why the W8BEN you submit has a section calling attention to the applicable Tax Treaty, so that the withholding agent can apply the Treaty rate (vice the 30% rate that would apply absent the W8BEN).

[Naam]

As a non-resident alien, you will not be liable for capital gains tax on shares, but dividends from US companies will have a tax withholding of 30%.

Like most tax treaties with the US, withholding at source on dividends is capped at 15%:

With respect to taxes on investment income, the [uS-Oz] Convention provides that the tax at source may not exceed 15 percent on dividends.... (except for certain dividends derived from real estate holdings, which can be up to 30%)

That is why the W8BEN you submit has a section calling attention to the applicable Tax Treaty, so that the withholding agent can apply the Treaty rate (vice the 30% rate that would apply absent the W8BEN).

if you hold your assets in a trust or an offshore corporation you are hit by the IRS with 30% no matter in which country you reside.