To all non-resident alien prof daytraders

spieler,

just looked for St. Maarten in the web. Seems to be a very vivid island with a good mixture of charming restaurants and commerce. How is living there?

If I understood it right one part of the island belongs to France, the other to the Netherlands. Are these parts own countries or do they belong to their european mothers (and are by this part of the EU)? Is taxation in the netherlandic side of the island like in the Netherlands (at least concerning the very attractiv capital gains tax model)?

Markus
 
Since I started this thread, I may as well conclude it with the information I was able to gather from 2 accountants:

As a resident in the Netherlands trading through a US based LLC, I will have to pay US income taxes and Dutch social security taxes.

Technically, the exposure exists that the Dutch tax authorities will disagree with the approach and may attempt to assume that you will have a fixed place of business in the Netherlands. The result would be an effective double taxation, should this happen the tax treaty contains a clause stipulating that tax authorities must liaise in order to solve the issue
 
Originally posted by chs245
Since I started this thread, I may as well conclude it with the information I was able to gather from 2 accountants:

As a resident in the Netherlands trading through a US based LLC, I will have to pay US income taxes and Dutch social security taxes.

Technically, the exposure exists that the Dutch tax authorities will disagree with the approach and may attempt to assume that you will have a fixed place of business in the Netherlands. The result would be an effective double taxation, should this happen the tax treaty contains a clause stipulating that tax authorities must liaise in order to solve the issue
More...

Get a third accountant.
 
I agree fully with Gene. If you are trading with Bright, there should be an accountant with Bright that knows the rules. If you can not find one local to your office, I am sure that if you PM Don here at Elite Trader, he will be more than happy to give you the contact information of the accountant/tax specialist at the firm's H.Q..

good luck.
 
To mhoev

Sorry for the delay i was on vacacion :)

Yes the island is shared between france and netherland antilles and not netherland and this is the trick .
Because Saint martin french part is E.U. and Sint Maarten netehrland antilles is outside E.U. :)

So i have nothing to pay on my capital gains
 
There is no tax haven.You have to file a form with your broker stating country of residence.If that country has a tax treaty with uncle sam,he will take no tax.If that country has no tax treaty with uncle sam he will take 30% of your profits and to hell with"no taxation without representation".
 
My previous post is baloney.I have searched high and low for the info you just posted.It is imposible to find it on the IRS site.Its a pity I have to post baloney to bring out the truth.
 
Originally posted by GreenTraderTax
After reading this thread, I decided to write a Web page on the tax rules for non resident traders.

http://www.greencompany.com/nonresidenttraders.htm

Here is an excerpt. We do suggest you use the above link, as we update our pages often. The excerpt links below are on the live page only.

Non-Resident Traders

Many "international taxpayers", who otherwise do not pay US taxes, have opened US based brokerage accounts and they have questions about what US taxes they owe in the US. We provide below, a full set of resources for international investors, traders and proprietary traders.

Here is a composite tax question we receive from many active traders living outside the US:

For 2001, I lived outside the US and I operated my business trading in US based securities with a US based "direct access" brokerage firm. In addition to that direct access trading account, I also joined a US based "proprietary trading firm", which is organized as a US based Limited Liability Company, taxed as a partnership.

When I opened my direct access brokerage account, I notified the broker that I was not a US resident, for tax purposes. The broker mentioned they were required to withhold taxes on my interest and dividend income in accordance with tax law and tax treaty rates, if applicable. The good news was the broker told me they would not withhold taxes on my capital gains. At tax time, the broker sent me a Form 1042-S, reporting my US tax withholding on interest and dividend income. I also understand that I don't have to file a US non-resident tax return (Form 1040NR), because the tax withholding took care of my responsibilities to pay US taxes.

My proprietary trading firm sent me a Form K-1, reporting my share of trading gains in the firm, based on my sub-trading account performance (see information on proprietary trading here). What shall I do with this K-1 and am I required to file a US tax return to pay taxes on this income. Some others questions indicate the firms withheld taxes on this income and they want to know what to do as well.

Quick Answer:

Based on your information provided above (and assuming you don't have a green card, so you are not a legal resident. and that you don't meet the "substantial presence test"), the IRS will consider you a "non-resident" for US tax purposes. Click here to see the general "residency" rules.

Good news: Since you did not spend more then 183-days in the US in 2001, you are not taxable on capital gains income. Click here to see special rules for capital gains, which apply to "investors" and "traders."

Good news: The IRS exempts your "direct access" generated trading business income from the "effectively connected income" (ECI) rules for operating a business in the US. Click here to see the ECI rules.

Other types of businesses operated in the US are deemed to have ECI income and they must pay US taxes on that EIC income. We believe the IRS exempted traders because it would be hard to determine where the business is operated from. Many international taxpayers trade remotely from abroad and it would have been unfair to tax them on ECI income in the US. Note of caution. If you come to the US to trade, you may trigger residency and then have to pay taxes on your trading income based on the residency rules rather then the ECI rules for non-residents.

Bad news (which may not be too bad after a foreign tax credit): The IRS does not exempt your K-1 income from your proprietary trading business activity from the "effectively connected income" rules for operating a business in the US. Click here to see these rules.

Now you are required to prepare a US income tax return for non-residents, Form 1040NR. You should report this K-1 income and pay the appropriate US taxes on this income. If your proprietary trading firm is located in a high taxing state, you are not a resident of that state and don't need pay state taxes, nor file a state tax return.

Don't be alarmed by paying US taxes. Be aware that your home country most likely allows you to claim a "foreign tax credit" for the US taxes you pay on this ECI K-1 income. If your home country has a higher tax rate then in the US, then you may get a dollar for dollar tax credit.

Note of Caution:

Answers to international tax questions for traders, investors and others are complex and the answers depend on each taxpayer's individual facts and circumstances. Many countries have "income tax treaties" with the US and taxpayers may find relief provisions in those treaties. Each treaty varies considerably.

Executive Summary:

International taxpayers who are deemed "non-residents" (no US green card and do not meet the "substantial presence test") are subject to US taxes in the following situations.

If the non-resident has a US based brokerage account, as a "trader" (in the business) or "investor", their US broker will withhold taxes on interest and dividends only (using lower tax treaty rates if applicable). There won't be any withholding on capital gains. The international taxpayer does not need a US tax identification number and they are not required to file a US non resident tax return, Form 1040NR.

If the non-resident has a US based brokerage account, as a "trader" (in the business) or "investor", and they spend over 183-days in the US, they owe US taxes on their net US source capital gains. Click here for more details. Many tax treaties contain provisions which reduce or eliminate taxation on capital gains.

If the non-resident has a US based brokerage account, and qualifies as a "trader" (in the business), they are exempt from the "effectively connected income" (ECI) rules for international taxpayers conducting business activities in the US. Click here for more details.

If the non-resident is a member of a US based "pass through" taxable entity (like a Limited Liability Company (LLC), taxed as a partnership, a general partnership or a limited partnership), in the business of trading securities or commodities, then that person has "effectively connected income" (ECI). That person must file a non resident tax return, Form 1040NR to report their ECI income and paying US taxes on that income. Click here for more details.

An international "proprietary trader" who is an LLC member in a US based LLC proprietary trading firm (taxed as a partnership) has ECI income (their K-1) and must file a Form 1040NR and pay tax on that ECI K-1 income. See ideas for foreign tax credits above.

In investor in a US based hedge fund limited partnership also has this ECI problem and that is whey foreign investors chose to invest in Offshore hedge funds instead.


Here are the tax law details with key GTT Observations:

General tax rules for "non-resident" aliens. Click here.

Tax rules for "non-resident" investors, not rising to the level of trading as a business. Click here.

Tax rules for "non-resident" traders, who trade US securities as a business; either with direct access firms and/or proprietary trading firms organized as US Limited Liability Companies. Click here.

Robert A. Green, CPA
President of GreenTraderTax.com
More...

Thanks for your input !

Oliver
 
Below are the facts I sent the IRS and the response I received. Not sure if it will help any but an lot depends upon whether your country has a tax treaty with the US. The issue is quite complicated and even after talking to revenue Canada, I could not get an answer. Get this..... they wanted to mail a description of all the facts so that their "complex business situations" department could provide some kind of ruling. The minimum charge is $500 plus $500 for every additional hour it takes their researcher o come to a decision. Like I am going to pay the government money so they can decide how they would like to tax me.

IRS email:

Your Question Was:
Situation as follows:
1. I am a Canadian Citizen residing in Canada 365 days year
2. I am considering joining an LLC in the US whose primary business is equities trading on the US Exchanges
3. All of my transactions will be conduced through the internet
4. I will receive a K1 at the end of the year
5. I personally do not have a permanent establishment in the US but the LLC does.

Am I required to file a tax return with the IRS or do I receive an exemption?


The Answer To Your Question Is:
Hello, thank you for your inquiry and for using our Electronic Tax Law Assistance Service.

If you do not have any U.S. source or other taxable U.S. income, you do not have to file a U.S. tax return.

However, you may be required to submit Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, if you are or is not claiming a reduced rate of, or exemption from, withholdings. You may give the Form W-8BEN to the withholding agent or payer if you are a foreign person and who is the beneficial owner of an amount subject to withholding.

If you have other taxable U.S. income and/or claiming a refund of taxes withheld in error you must file. You should file Form 1040NR, U.S. Nonresident Alien Income Tax Return.

For more information on the above issue, please refer to Publication 519, U.S. Tax Guide for Aliens.

We hope this information is helpful.

Thank you for your honesty and cooperation in this matter.
 
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