FAQForeigners Who Get Investment Income from the U.S. Should Know Tax Issues
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Who are foreigners? |
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Foreigners, or named non-resident alien (NRA), are non-U.S. citizens who do not hold a green card nor meet the substantial presence test. The Substantial Presence Test involves being in the U.S. both 31 days in the current year and 183 days total in the current year and preceding two years. The days of the first preceding year are weighted by 1/3 (every 3 days stayed in the US will count as just 1 day towards the 183). The second preceding year are weighted by 1/6. Foreigners also include foreign corporations and other foreign entities. |
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Q： |
Should I have to pay tax on income/gains from U.S. stocks? |
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Generally, an NRA who get a dividend from a U.S. company, must pay 30% tax on the dividend amount. This rate may be lower if a tax treaty exists between U.S. and NRA’s resident country. For example, treaty countries include Austria (15%), Canada (15%), People’s Republic of China (10%), France (15%), Germany (15%), India (25%), Indonesia (15%), Italy (15%), Japan (10%), Korea (15%), Philippines (25%), etc. An NRA who gets capital gains from the sale of stock will NOT trigger any U.S. tax liability. However, you may have to pay tax in your resident country. |
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Should I have to pay tax on interest income from U.S. bank deposit? |
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It depends. If an NRA received interest income from bank deposit exceeds US$10, he/she will be subject to 30% withholding. This rate may be lower if a tax treaty exists between U.S. and NRA’s resident country. For example, treaty countries include Austria (0%), Canada (0%), People’s Republic of China (10%), France (0%), Germany (0%)，India (15%), Indonesia (10%), Italy (10%), Japan (0%), Korea (12%), Philippines (15%), etc. |
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Should I have to pay tax on royalty income from the right to use a U.S. intellectual property? |
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Yes, the source of the income for a royalty is where the property is used. Royalties paid to an NRA are subject to 30% withholding, unless a tax treaty applies. For example, treaty countries include Austria (5%), Canada (0%), People’s Republic of China (10%), France (0%), Germany (0%)，India (15%), Indonesia (10%), Italy (0%), Japan (0%), Korea (10%), Philippines (15%), etc. |
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Should I have to pay tax on rental income and sale of real estate during NRA period? |
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Yes, rental income from U.S. property are subject to 30% tax on gross rental income, which are collected by withholding agent. Once an NRA sell the real estate, 15% tax will be withheld on the gain. |
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Should I have to pay tax on amount realized from sale, exchange, or disposition of a partnership interest? |
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Yes. There is a 10% withholding tax applicable to the amount realized from a foreign person’s sale, exchange, or disposition of a partnership interest, to the extent the foreign person would have effectively connected income (ECI, will be defined later) if the partnership had sold all of its assets. |
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What is effectively connected income (ECI) and should I have to pay tax on ECI? |
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The following categories of income are usually considered to relate to a trade or business in the U.S. which are treated as ECI:
NOTE: If your only U.S. business activity is trading in stocks, securities, or commodities (including hedging transactions) through a U.S. resident broker or other agent, you are NOT engaged in a trade or business in the United States. Yes, an NRA should pay tax on ECI, and deductions are allowed against ECI, which is taxed at the graduated rates or applicable rate. |
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