Was there a change in US tax law ?

J

jrkob

I am a non-US citizen living in Hong-Kong, and own US shares.
As an example, DMO.

DMO is a Closed End Fund that distributes 3 types of cashflow/dividend:
Income, Short-Term Capital Gain, and Long-Term Capital Gain

For the past few years I have owned this stock, I was being charged a 30% witholding tax on the Income portion, but 0% on the STCG and LTCG.

I have received a statement from my broker this morning, saying that the STCG that was paid to me in January (no tax had been witheld) is going to be retroactively subject to 30% witholding tax (my account will be debited next week).

Was there a change in US tax Law ?

Thank you.

* Edit: my DMO also paid a LTCG on January, and for this one, I did NOT receive a notice that a 30% witholding tax will retroactively be applied. It looks like it's still tax-free.
 
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Best to double check with a tax attorney.But I believe as a non-US person you should file a W8 and no tax will be withheld in the USA. At least that is my set-up.
 
Thanks for the reply. Yes I have a W8BEN form in place.
But are you saying that in your case, as a non-US person, you pay zero tax even on dividends when they are categorized as income ?
 
I found this:
Tax: Non-US Persons and Entities: Form 1042-S
Form 1042-S reports US source income earned by non-US persons subject to US withholding tax, including interest, dividends, substitute payments in lieu and fees earned (paid to and for account managers) on your account for the year. You may receive multiple 1042-S forms reporting different types of income. This information is also reported to the IRS. Each type of income is reported on a separate form using a code in Box 1. Common codes are:

01) Interest paid by U.S. obligors including the U.S. Treasury
29) Deposit Interest
30) Original issue discount (OID)
06) Dividends paid by U.S. Corporations
34) Substitute payment – Dividends
35) Substitute- payment – Other
50) Other Income

Box 2 indicates the amount of income credited to your account of this type, Box 5 the rate at which tax was withheld and Box 7, the amount of U.S. Tax withheld.

If the income is exempt from withholding tax a code appears in Box 6.
 
Yes, STCG now are subject to 30% withholding. Harry Reid (of all people) tried to extend that loophole but Congress didn't follow through. As a result now you have to be very careful about which ETFs you buy as a non-US investor. A lot of the time you are better off trying to use options (depending on the liquidity), futures or cash bonds to get exposure to something rather than to use ETFs because of that tax
or at least find a similar fund that does not sell assets in the short-term but holds them for long-term gains
 
Based on the argument as above and difficulty like "I am a non-US citizen living in Hong-Kong, and own US shares."

Probably it is better NOT to start investing as "non-US citizen living in Hong-Kong"
 
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