Investing for NRA (Non Resident Alien) WITH US Tax Treaty

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Topic Author
Neus
Posts: 496
Joined: Fri Sep 22, 2017 2:12 am
Location: a Developing country in Asia with Low Cost of Living and Tax Treaty with USA

Investing for NRA (Non Resident Alien) WITH US Tax Treaty

Post by Neus »

Greeting Fellow Bogleheads,

I have browse a lot of thread with NRA problems but most of the thread is specifically for NRA WITHOUT tax treaty, the cut is clear with Ireland based ETF as the best option

However it's rarely discussed the best option for NRA WITH US Tax Treaty, such as my situation (Indonesia), The dividend tax treaty makes L1TW applied to NON tax treaty NRA which is 30%, down to 15%

Plus additional disadvantages of Ireland domiciled ETF mentioned at other thread such as:
1) Higher TER
2) Lower Dividend Rate for unclear reason (i post this issue at separate thread at viewtopic.php?f=10&t=242288)
3) Lower Liquidity
4) Higher Spread
5) Less Diversivication
6) The absence of VXUS equivalent

And my own calculation shown that Ireland Domiciled ETF WITH Tax treaty give quite a lot lower net distribution
Image

Therefore my current conclusion for NRA WITH tax treaty is:
It's preferable to use US based ETF, let it run smoother than Ireland Domiciled ETF, but later to avoid US estate tax of 40%, prepare heir for access IB account, then in case of my demise: liquidate the account, withdraw the money back, and let them reinvest back with their own IB account

Thoughts?
Last edited by Neus on Sun Feb 25, 2018 9:38 am, edited 1 time in total.
Remember Rule 5: Never try to time the market. Two common timing mistakes: buying yesterday's top performers, and letting your emotions cause you to attempt to predict the direction of the stock market.
TedSwippet
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Re: Investing for NRA WITH US Tax Treaty

Post by TedSwippet »

Neus wrote: Wed Feb 21, 2018 11:24 pm2) Lower Dividend Rate for unclear reason (i post this issue at separate thread ...)
Because it includes -- that is, it is reduced by -- both the L1TW and the ETF's TER.
Neus wrote: Wed Feb 21, 2018 11:24 pmAnd my own calculation shown that Ireland Domiciled ETF WITH Tax treaty give quite a lot lower net distribution.
See this post for details of the errors in your calculation.
Topic Author
Neus
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Re: Investing for NRA WITH US Tax Treaty

Post by Neus »

TedSwippet wrote: Thu Feb 22, 2018 2:56 am
Neus wrote: Wed Feb 21, 2018 11:24 pm2) Lower Dividend Rate for unclear reason (i post this issue at separate thread ...)
Because it includes -- that is, it is reduced by -- both the L1TW and the ETF's TER.
Neus wrote: Wed Feb 21, 2018 11:24 pmAnd my own calculation shown that Ireland Domiciled ETF WITH Tax treaty give quite a lot lower net distribution.
See this post for details of the errors in your calculation.
TedSwippet,

Thank you for the explanation, it's make sense now

Regarding US Domiciled REITS dividend (US REITS VNQ, International REITS VNQI), does it taxed the same way as US domiciled stock/bond dividend (0% at L1TW and then 15% at L2TW for NRA with treaty)?
Remember Rule 5: Never try to time the market. Two common timing mistakes: buying yesterday's top performers, and letting your emotions cause you to attempt to predict the direction of the stock market.
TedSwippet
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Re: Investing for NRA WITH US Tax Treaty

Post by TedSwippet »

Neus wrote: Fri Feb 23, 2018 7:45 amRegarding US Domiciled REITS dividend (US REITS VNQ, International REITS VNQI), does it taxed the same way as US domiciled stock/bond dividend (0% at L1TW and then 15% at L2TW for NRA with treaty)?
No direct experience, and personally I have not investigated the topic. This paper from Deloitte suggests that REITs are 'special', with differential levels of withholding depending on how the distribution or dividend arises:
A REIT is a type of US corporation. Dividends paid by REITs in general are subject to the US withholding rules applicable to dividends paid by any US corporation, with two exceptions. Distributions attributable to the REIT’s disposition of US real estate are subject to withholding tax at 35%. Treaties often provide somewhat less of a reduction in the US withholding tax imposed on a REIT’s dividends than they do on a regular C-corporation’s dividends.
FedGuy
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Re: Investing for NRA WITH US Tax Treaty

Post by FedGuy »

Sorry to derail the thread, but can someone please let me know what "NRA" stands for in this context? I checked the Wiki but couldn't find anything. I'm guessing that the acronym doesn't stand for what I initially thought, so I was hoping to get some context.
TedSwippet
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Re: Investing for NRA WITH US Tax Treaty

Post by TedSwippet »

FedGuy wrote: Sat Feb 24, 2018 4:25 pmSorry to derail the thread, but can someone please let me know what "NRA" stands for in this context? I checked the Wiki but couldn't find anything.
Non-resident alien. A person who is not a US resident and not a US citizen. I'll add "NRA" to the site's wiki on abbreviations; thanks for the note.
FedGuy
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Re: Investing for NRA WITH US Tax Treaty

Post by FedGuy »

TedSwippet wrote: Sun Feb 25, 2018 12:22 pmNon-resident alien. A person who is not a US resident and not a US citizen. I'll add "NRA" to the site's wiki on abbreviations; thanks for the note.
Thanks! I should have been able to figure that out on my own, but there've been a lot of news stories in the last week or two about another use of that same acronym so maybe it was hard for me to think outside of that particular box.
Topic Author
Neus
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Re: Investing for NRA WITH US Tax Treaty

Post by Neus »

TedSwippet wrote: Sat Feb 24, 2018 12:05 pm
Neus wrote: Fri Feb 23, 2018 7:45 amRegarding US Domiciled REITS dividend (US REITS VNQ, International REITS VNQI), does it taxed the same way as US domiciled stock/bond dividend (0% at L1TW and then 15% at L2TW for NRA with treaty)?
No direct experience, and personally I have not investigated the topic. This paper from Deloitte suggests that REITs are 'special', with differential levels of withholding depending on how the distribution or dividend arises:
A REIT is a type of US corporation. Dividends paid by REITs in general are subject to the US withholding rules applicable to dividends paid by any US corporation, with two exceptions. Distributions attributable to the REIT’s disposition of US real estate are subject to withholding tax at 35%. Treaties often provide somewhat less of a reduction in the US withholding tax imposed on a REIT’s dividends than they do on a regular C-corporation’s dividends.
TedSwippet,

I see

It seems my liking for REITS is false though as reading some total return vs dividend thread convince me to go towards total return and not being sucker for high dividend :D

Current conclusion still favours US domiciled ETF's though, the reason is i can buy a good life insurance with the difference in fees alone (averages 0.15% - 0.2% difference), so if a fatal accident occur early, and my heir is too dumb/neglect to execute liquidate plan, the life insurance will compensate 40% loss on the estate tax
Remember Rule 5: Never try to time the market. Two common timing mistakes: buying yesterday's top performers, and letting your emotions cause you to attempt to predict the direction of the stock market.
Topic Author
Neus
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Location: a Developing country in Asia with Low Cost of Living and Tax Treaty with USA

Re: Investing for NRA (Non Resident Alien) WITH US Tax Treaty

Post by Neus »

I wonder what is the best citizenship for NRA to pay less dividend income tax, capital gain tax, and estate tax?

As baseline, how much does us citizen pay for dividend income tax, capital gain tax, and estate tax?

Turns out in Indonesia dividend income and capital gain from selling stock is summed up annually and then taxed at personal income tax bracket (about 30%), with us tax withholding of 15% (with treaty) can be applied as deductibles, therfore still equals 30% cut (15% paid to us gov, 15% paid to indo gov)
Remember Rule 5: Never try to time the market. Two common timing mistakes: buying yesterday's top performers, and letting your emotions cause you to attempt to predict the direction of the stock market.
ishallnotwant
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Location: Singapore/Indonesia

Re: Investing for NRA (Non Resident Alien) WITH US Tax Treaty

Post by ishallnotwant »

Neus wrote: Tue Feb 27, 2018 6:13 am I wonder what is the best citizenship for NRA to pay less dividend income tax, capital gain tax, and estate tax?
Neus,

I am not sure for other countries, but I know that Singapore tax residents can benefit from zero dividend income tax (in most cases) and zero capital gain tax. Furthermore, Singapore also has zero estate tax imposed on its tax residents upon death. I am sure that you already know that US estate tax can be avoided by investing in Ireland-domiciled ETFs instead.

:beer
Topic Author
Neus
Posts: 496
Joined: Fri Sep 22, 2017 2:12 am
Location: a Developing country in Asia with Low Cost of Living and Tax Treaty with USA

Re: Investing for NRA (Non Resident Alien) WITH US Tax Treaty

Post by Neus »

ishallnotwant wrote: Tue Mar 06, 2018 4:43 am
Neus wrote: Tue Feb 27, 2018 6:13 am I wonder what is the best citizenship for NRA to pay less dividend income tax, capital gain tax, and estate tax?
Neus,

I am not sure for other countries, but I know that Singapore tax residents can benefit from zero dividend income tax (in most cases) and zero capital gain tax. Furthermore, Singapore also has zero estate tax imposed on its tax residents upon death. I am sure that you already know that US estate tax can be avoided by investing in Ireland-domiciled ETFs instead.

:beer
Ishallnotwant,

Thank you for the information

Is there a cost effective way to became Singapore tax resident? If by living in Singapore, the problem is the cost of living in Singapore will wipe out any benefit of not paying taxes as it's much more expensive than Indonesia
Remember Rule 5: Never try to time the market. Two common timing mistakes: buying yesterday's top performers, and letting your emotions cause you to attempt to predict the direction of the stock market.
ishallnotwant
Posts: 5
Joined: Thu Feb 23, 2017 1:05 am
Location: Singapore/Indonesia

Re: Investing for NRA (Non Resident Alien) WITH US Tax Treaty

Post by ishallnotwant »

Is there a cost effective way to became Singapore tax resident? If by living in Singapore, the problem is the cost of living in Singapore will wipe out any benefit of not paying taxes as it's much more expensive than Indonesia
Neus,

I believe that there are 3 ways to become a Singapore tax resident:
1. You are a Singapore citizen;
2. You have obtained Singapore Permanent Resident (PR) with a permanent home in Singapore;
3. You are a foreigner who is present or exercises employment in Singapore for at least 183 in a calendar year.

If you are either in category 1 or 2, you can still be a Singapore tax resident even though you are in Indonesia for quite some time. I suppose neither is cost effective if you have no dealings in Singapore at all as foreigners need to be present for at least half a year in Singapore.

:beer
Topic Author
Neus
Posts: 496
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Location: a Developing country in Asia with Low Cost of Living and Tax Treaty with USA

Re: Investing for NRA (Non Resident Alien) WITH US Tax Treaty

Post by Neus »

ishallnotwant wrote: Tue Mar 06, 2018 7:34 pm
Is there a cost effective way to became Singapore tax resident? If by living in Singapore, the problem is the cost of living in Singapore will wipe out any benefit of not paying taxes as it's much more expensive than Indonesia
Neus,

I believe that there are 3 ways to become a Singapore tax resident:
1. You are a Singapore citizen;
2. You have obtained Singapore Permanent Resident (PR) with a permanent home in Singapore;
3. You are a foreigner who is present or exercises employment in Singapore for at least 183 in a calendar year.

If you are either in category 1 or 2, you can still be a Singapore tax resident even though you are in Indonesia for quite some time. I suppose neither is cost effective if you have no dealings in Singapore at all as foreigners need to be present for at least half a year in Singapore.

:beer
Thank you for the pointer, i'll investigate further on the options
Remember Rule 5: Never try to time the market. Two common timing mistakes: buying yesterday's top performers, and letting your emotions cause you to attempt to predict the direction of the stock market.
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galeno
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Re: Investing for NRA (Non Resident Alien) WITH US Tax Treaty

Post by galeno »

In the Americas for NRA w/o tax treaty I believe Panama is best. This is why we (wife and I) just became Panamanian residents.

The expenses on our 40/60 port: 0.19% ER + 0.10% taxes + 0.12% misc. (commissions, spreads, currency costs USD to CRC, wire transfer costs, etc) = 0.40%.

Somebody else will have to figure out the expenses and taxes of a USA domiciled person or couple.
Neus wrote: Tue Feb 27, 2018 6:13 am I wonder what is the best citizenship for NRA to pay less dividend income tax, capital gain tax, and estate tax?

As baseline, how much does us citizen pay for dividend income tax, capital gain tax, and estate tax?

Turns out in Indonesia dividend income and capital gain from selling stock is summed up annually and then taxed at personal income tax bracket (about 30%), with us tax withholding of 15% (with treaty) can be applied as deductibles, therfore still equals 30% cut (15% paid to us gov, 15% paid to indo gov)
KISS & STC.
Topic Author
Neus
Posts: 496
Joined: Fri Sep 22, 2017 2:12 am
Location: a Developing country in Asia with Low Cost of Living and Tax Treaty with USA

Re: Investing for NRA (Non Resident Alien) WITH US Tax Treaty

Post by Neus »

galeno wrote: Wed Mar 07, 2018 7:17 pm In the Americas for NRA w/o tax treaty I believe Panama is best. This is why we (wife and I) just became Panamanian residents.

The expenses on our 40/60 port: 0.19% ER + 0.10% taxes + 0.12% misc. (commissions, spreads, currency costs USD to CRC, wire transfer costs, etc) = 0.40%.

Somebody else will have to figure out the expenses and taxes of a USA domiciled person or couple.
Neus wrote: Tue Feb 27, 2018 6:13 am I wonder what is the best citizenship for NRA to pay less dividend income tax, capital gain tax, and estate tax?

As baseline, how much does us citizen pay for dividend income tax, capital gain tax, and estate tax?

Turns out in Indonesia dividend income and capital gain from selling stock is summed up annually and then taxed at personal income tax bracket (about 30%), with us tax withholding of 15% (with treaty) can be applied as deductibles, therfore still equals 30% cut (15% paid to us gov, 15% paid to indo gov)
Gelano,

Thanks for the insight for panama
Remember Rule 5: Never try to time the market. Two common timing mistakes: buying yesterday's top performers, and letting your emotions cause you to attempt to predict the direction of the stock market.
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