I am a non-U.S. citizen living outside the U.S. and trading stocks through a U.S. internet broker. Do I have to pay taxes on the money I earn?

By Chad Langager AAA
A:

The tax implications for a foreign investor will depend on whether that person is classified as a resident alien or a non-resident alien. To be considered a non-resident alien, a person must meet several guidelines. First of all, the person cannot have had a green card at any time during the relevant tax reporting period (e.g 2005) and cannot have resided in the U.S. for more than 183 days in the past three years, including the current reporting period. However, non-U.S. citizens who hold green cards and have been in the U.S. for more than 183 days are classified as resident aliens for tax purposes and are subject to different guidelines than non-resident aliens.

If you fall under the non-resident alien category and the only business you have in the U.S. is in investments (stocks, mutual funds, commodities) within a U.S. dollar-denominated brokerage firm or other agent, you are subject to the following tax guidelines. In terms of capital gains, non-resident aliens are subject to no U.S. capital gains tax, and no money will be withheld by the brokerage firm. This does not mean, however, that you can trade tax free - you will likely need to pay capital gains tax in your country of origin. In terms of dividends, non-resident aliens face a dividend tax rate of 30% on dividends paid out by U.S. companies. However, they are excluded from this tax if the dividends are paid by foreign companies or are interest-related dividends or short-term capital gain dividends. This 30% rate can also be lower depending on the treaty between your home country and the U.S., so it is important that you contact your brokerage firm to verify the rate. If you are a resident alien and hold a green card or satisfy the resident rules (183 days), you are subject to the same tax rules as any U.S. citizen.

For more information, see IRS Publication 519: U.S. Tax Guide For Aliens.

RELATED FAQS

  1. How can I trade in foreign futures?

    Discover how an American investor can get started in trading foreign futures, including which regulations and restrictions ...
  2. How many nations must a company trade in to be considered a multinational corporation?

    Learn about the conditions a company has to meet to be considered multinational, and find out when investing in multinational ...
  3. What makes China's special administrative regions (SAR) so special?

    Learn why China's special administrative regions are special and why they have many of the same characteristics of independent ...
  4. How risky is it to invest in metals and mining companies with operations in politically ...

    Learn about a number of risk factors such as tax policies and changes in fees that can affect a mining company operating ...
RELATED TERMS
  1. Deferred Tax Asset

    A deferred tax asset is an asset on a company's balance sheet ...
  2. Welfare Capitalism

    Definition of welfare capitalism.
  3. Foreign remittance

  4. Heckscher-Ohlin Model

    An economic theory that states that countries export what they ...
  5. Sponsored ADR

    An American depositary receipt (ADR) issued by a bank on behalf ...
  6. Depositary Receipt

    A negotiable financial instrument issued by a bank to represent ...

You May Also Like

Related Articles
  1. Stock Analysis

    A New Economic Threat: State-Sponsored ...

  2. Stock Analysis

    Why Should Investors Read The Annual ...

  3. Economics

    Iron Ore Market: Falling Into The Hands ...

  4. Stock Analysis

    What’s The Best Airline Stock In the ...

  5. Stock Analysis

    Can Modi Mania Continue?

Trading Center