Non-resident vs. citizen

Quote from Expatrader:

The 30% withholding applies to non-resident aliens from countries which do not have a tax treaty with the US.

For countries with treaties, the treaties themselves have different specifications for the tax liabilities on different types of income. You can locate tax treaties from the IRS website and download them.

Of most interest to traders, there are several countries whose nationals will get zero US-side liability for capital gains from investment/trading in stocks. In theory, the broker will send a statement to tax authorities of the foreign country in question, or the trader will 'honestly' claim the income. In reality, many places do not have anything set up to deal with this effectively, others have a cap gains rate quite a bit lower than the states.

The non-resident alien trader will have to apply for a US Taxpayer Identification Number in order to open the brokerage account a file the W-8 BEN to get exemption from the 30% withholding.

I have looked into this extensively as there is obviously potential for an edge here...

P.S. The benefit to the US of doing this is that those tax treaty countries extend likewise breaks to US people and companies working in their economies.
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Expatrader, thx for valuable information. One Q: why using Taxpayer Identification Number you get exemption from 30% withholding ? Does Uncle Sam considers you then being under his jurisdiction ?
 
To get the TIN, the individual must apply using notarized documentation showing what country he/she is a resident/national of, and so eligible to claim the particular treaty benefits, if any. The tax payer id number is also just in general what the IRS uses for people who have no social security number. Note that even if a person could not get exemption from the withholding on a treaty basis, they could get a tax refund of some or all of the withheld money later, but I imagine they need a TIN to work through that also. I have not looked into the refund angle as it does not apply to the case I am interested in.

The W-8 BEN is used to claim eligiblity for treaty benefits, and is sent to the brokerage, not the IRS. Thus, I believe the responsibility is more on the brokers to keep track of who is from where and who they need to withhold on or not. Then the brokers use the numbers in their paperwork to the IRS regarding those who got exemptions from withholding.

To make a long story short, go to the Phillipines, Korea, or other selected locales, marry a local, don't get them a res visa or green card, get them a TIN, set up an account for them, and start trading hard! You may also need the TIN to set up a bank account to shift all that loot to. Just be sweet to your partner and you carry the atm card.
 
Quote from Expatrader:

To get the TIN, the individual must apply using notarized documentation showing what country he/she is a resident/national of, and so eligible to claim the particular treaty benefits, if any. The tax payer id number is also just in general what the IRS uses for people who have no social security number. Note that even if a person could not get exemption from the withholding on a treaty basis, they could get a tax refund of some or all of the withheld money later, but I imagine they need a TIN to work through that also. I have not looked into the refund angle as it does not apply to the case I am interested in.

The W-8 BEN is used to claim eligiblity for treaty benefits, and is sent to the brokerage, not the IRS. Thus, I believe the responsibility is more on the brokers to keep track of who is from where and who they need to withhold on or not. Then the brokers use the numbers in their paperwork to the IRS regarding those who got exemptions from withholding.

To make a long story short, go to the Phillipines, Korea, or other selected locales, marry a local, don't get them a res visa or green card, get them a TIN, set up an account for them, and start trading hard! You may also need the TIN to set up a bank account to shift all that loot to. Just be sweet to your partner and you carry the atm card.
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Man, you could be tax attorney :)
Thx for all insights. BTW do you know by any chance what`s the story with Western European countries ? I`m already married to Dutch girl which can make things easier, just have to check waters first.
 
food for thought: best of my knowledge, larger part of europe tax system is totally based on paycheck deductions, it has no such thing as tax filing after the fiscal year ends.

I am Lithuanian by nationality, and there is zero tax on cap gains from derivatives and something like 10% on equities, and even then it is only if you use a local broker (no big names Wallstreet names in Lithuania yet). If your account is with MSDW or ML or even IB for that matter, you're basically tax free, and there are no one who could catch you since there is no laws that reglament such a thing.

I had a friend of mine look into this that works for PWC tax department in Lithuania and he said it is totally doable. The catch - you have to be in Lithuania for over 180 days per year.

the catch for US citizens? well, it is illegal for US citizen to do that.
MK
 
Quote from mkmps:

food for thought: best of my knowledge, larger part of europe tax system is totally based on paycheck deductions, it has no such thing as tax filing after the fiscal year ends.

I am Lithuanian by nationality, and there is zero tax on cap gains from derivatives and something like 10% on equities, and even then it is only if you use a local broker (no big names Wallstreet names in Lithuania yet). If your account is with MSDW or ML or even IB for that matter, you're basically tax free, and there are no one who could catch you since there is no laws that reglament such a thing.

I had a friend of mine look into this that works for PWC tax department in Lithuania and he said it is totally doable. The catch - you have to be in Lithuania for over 180 days per year.

the catch for US citizens? well, it is illegal for US citizen to do that.
MK
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I have this strong feeling that we are moving around grey area of business and this world eventually gets smaller some day. I wonder why is that ? Are we traders, the last frontier of pure capitalism ? Or, as we represent only minority of the world`s society, our governments are just too busy controlling majorities:)
 
Looks like the Netherlands is not one of the favored places.
For cap gains relief anyway. There are other benefits related to Amsterdam...

http://www.irs.gov/pub/irs-trty/nether.pdf

ARTICLE 14
Capital Gains
1. Gains derived by a resident of one of the States from the disposition of real property situated in
the other State may be taxed in the other State. For the purposes of this paragraph the term "real
property situated in the other State" shall include:
a) real property referred to in Article 6 (Income from Real Property); and
b) shares or other comparable corporate rights in a company that is a resident of that
other State, the assets of which company consist, directly or indirectly, for the greater part of
real property situated in that other State, and an interest in a partnership, trust, or estate, to the
extent that it is attributable to real property situated in that other State.
 
However, upon checking IRS Publication 901, which is by the way a key resource for anyone intersted in tax treaty stuff, it looks like Netherlands residents do have zero cap gains liability in the states as long as the gains are not connected with any permanent establishment there.


http://www.irs.gov/pub/irs-pdf/p901.pdf

Trading tax free from Amsterdam! Oh yeah...
 
The Swiss pay no capital gains tax on stock/futures investments either in the US or elsewhere. Small independent country not part of the EU with it's myriad of compliant rules etc.

Possible solution for an American man?
Find a nice Swiss lady to marry and come to live in Switzerland with her. If you meet her in the US, make sure she is neither a US citizen nor a US green card holder. Once in Switzerland, open the trading account (with a US broker) in her name only and file Form W8-Ben with the broker. As a local Swiss national, your wife owes the US nothing. You get the best of all worlds ...hell of place to live, the benefits of US brokerage account, trade Eurex and Globex at civilised hours of the day and accumulate your gains tax-free. Banking your gains in Switzerland for futher investment is also 100% private under law. No need to give up US citizenship because it's your wife that is making money not you. After all, you may want to go back to the US for retirement c/o your wife's trading gains over the years. Then again, once you've lived in beautiful & prosperous Switzerland for a while (where so many people speak English), you may not want to go back!
 
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