Why don't foreigners pay taxes at US exchanges?

A quick google search will give you more information, here is one of the first links that come up :

http://www.isla-offshore.com/going-offshore/cgt-exemption-for-foreign-trader/

"Capital Gains Tax (CGT) Exemption in the U.S.

Under the general rule capital gains of non-residents received from U.S. sources are not taxed with the U.S. This rule should also apply to Forex ordinary income with IRC 988 and short-term capital gains from securities."

If you look a little further you will find the IRS links
 
luisHK said:
U're mistaking witholding tax, which is subject to taxation on source income and dependant on double taxation treaties, and capital gain tax. Foreigners' cap gains made on us exchanges are not subject to taxation from the irs regardless of tax treaties between their country of residence and the us. Wether they will end up paying cap gains will depend on the tax policies of their residence country.
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There is no such thing as a "witholding tax." Withholding is a collection issue. Taxes on certain kinds of income are subject to withholding by the payer because it would be very difficult to collect from a nonresident otherwise. Before the collection issue, however, comes the determination of whether or not the income is taxable.

I've already explained source jurisdiction and the reduced rates or exemption under treaty. You are free to believe what you wish.

Double taxation is a separate issue.
 
In the link below is a list of countries and the indication of wether they have signed a tax treaty with the US. Do you mean the residents of countries without a tax treaty will be subject to cap gain tax from the US over their profits in US stock and future exchanges ?
If that's what you mean, I might be free to believe what I want, but you would be welcome not to share false information embroided in an expert tone without any link to back it up.
If that's not what you mean, beeing clearer won't hurt especially as this thread will be of interest to non US residents and non native speakers.

http://www.rumbaklaw.com/resources-...and-without-income-tax-treaties-with-the-u-s/
 
BTW I'm talking of non US citizens residing outside the US, it seems US citizens are in a tax hell of their own no matter where they try to hide.
 
This is true. The 'capitalist' US has the second highest short-term capital gains rate on earth (after australia, which is 45-46%) at 43.4% (39.6+3.8), this is even higher than the capital gains rates for 'socialist european' countries.

If you're an equities trader in the US, you are getting creamed on taxes vs a trader from offshore with a co-located setup.

Curiously, the tax system seems to overlook the 'one dollar salary' loophole, where executives of large corporations who get paid in stock options, can avoid income tax, by simply holding the bonus compensation for 1 year before executing the options, and then get their effective salary taxed at the short-term capital gains rate.

en.wikipedia.org/wiki/One-dollar_salary

The US doesn't seem like that friendly of an environment for traders compared to what it once was, it seems that the US government mainly caters to corporate types.
 
icarus618 said:
That's not quite correct. The US claims source jurisdiction over income of nonresidents, including capital gains, that are from US sources. It is only by bilateral treaty that US-source capital gains of nonresidents are exempt. If the nonresident is from a non-treaty country, he would be subject to taxation here on his US source income.
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See
http://www.bankrate.com/finance/taxes/capital-gain-tax-nonresident-investors.aspx

"If you were in the United States for less than 183 days during the tax year, capital gains (other than gains listed earlier) are tax-exempt unless they are effectively connected with a trade or business in the United States during your tax year."

This does not depend on a treaty.

Treaties may deal with cases of individuals who are partly resident in (or citizens of) two countries.

The U.S. relies heavily on foreign investment and would not tax it. After all, a large percentage of U.S. securities are owned by foreigners, and many of them would go elsewhere if they were taxed on capital gains on them. Large companies are usually listed on foreign exchanges as well, and all foreign investors would instantly transfer their trading in these companies to foreign exchanges.

This also applies to U.S. sovereign debt.
 
luisHK said:
In the link below is a list of countries and the indication of wether they have signed a tax treaty with the US. Do you mean the residents of countries without a tax treaty will be subject to cap gain tax from the US over their profits in US stock and future exchanges ?
If that's what you mean, I might be free to believe what I want, but you would be welcome not to share false information embroided in an expert tone without any link to back it up.
If that's not what you mean, beeing clearer won't hurt especially as this thread will be of interest to non US residents and non native speakers.

http://www.rumbaklaw.com/resources-...and-without-income-tax-treaties-with-the-u-s/
More...

This is a post on a message board. I am not writing an opinion letter or a legal brief. I can appreciate your wanting citations, but that's up to my whim. If you don't appreciate my tone, that's your problem. Although I am here to bullshit, I can assure you I do not post false information intentionally.

I can provide you legal citations, not website links like you provide, but I'm too lazy and don't see the need for that. I think I provide good information in areas that I know really well. Although it has been over a decade since I practiced, my profession was tax attorney and my specialty was international taxation. That being said, no one should take what's on a message board as legal or professional advice.

Here's how the US tax regime works for international transactions. As I stated earlier, the US exercises source jurisdiction for income of nonresidents sourced in the US. Source income falls under one of two categories: (a) effectively connected income to a US trade or business; or (b) not effectively connected income. Trading activity usually falls into the second category - not effectively connected income. By statute, this type of income is taxed at a straight 30%. Treaty provisions, however, can either reduce or eliminate this rate.

Do you get that? Without treaty provisions that otherwise reduce or eliminate income tax, income from trading by nonresidents would be taxed at the statutory rate of 30%.

Again, no one should rely on this as legal advice.
 
icarus618 said:
This is a post on a message board. I am not writing an opinion letter or a legal brief. I can appreciate your wanting citations, but that's up to my whim. If you don't appreciate my tone, that's your problem. Although I am here to bullshit, I can assure you I do not post false information intentionally.

I can provide you legal citations, not website links like you provide, but I'm too lazy and don't see the need for that. I think I provide good information in areas that I know really well. Although it has been over a decade since I practiced, my profession was tax attorney and my specialty was international taxation. That being said, no one should take what's on a message board as legal or professional advice.

Here's how the US tax regime works for international transactions. As I stated earlier, the US exercises source jurisdiction for income of nonresidents sourced in the US. Source income falls under one of two categories: (a) effectively connected income to a US trade or business; or (b) not effectively connected income. Trading activity usually falls into the second category - not effectively connected income. By statute, this type of income is taxed at a straight 30%. Treaty provisions, however, can either reduce or eliminate this rate.

Do you get that? Without treaty provisions that otherwise reduce or eliminate income tax, income from trading by nonresidents would be taxed at the statutory rate of 30%.

Again, no one should rely on this as legal advice.
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Foreigners are taxed only on Fixed, Determinable, Annual or Periodical Income (“FDAP”) from U.S. Sources.

Tax at a 30% (or lower treaty) rate applies to FDAP income or gains from U.S. sources.

See
http://www.irs.gov/Individuals/Inte...eterminable,-Annual,-Periodical-(FDAP)-Income

Capital Gains of foreigners are not FDAP Income and are therefore not taxed (in general).
 
as already stated trading as income (trader) is different from capital gain (investor)

basically money (earned) is taxed and movement and investment of capital is not (yet)
 
vicirek said:
as already stated trading as income (trader) is different from capital gain (investor)
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Actually as far as the IRS is concerned (and AFAIK) it doesn't matter wether the cap gain are short or long term or wether they are earned by an investor or a trader. Cap gains on stock and future US markets from non US residents (not US citizens at least) are not taxed by the IRS. Wether a trader and an investor will eventually be taxed differently on their gains will depend on the tax regulations of their country of residence.
 
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