how are the 30% taxes deducted for a US domiciled ETF for a non-US resident?

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imbroke2
Posts: 15
Joined: Sat Dec 07, 2019 1:09 am

how are the 30% taxes deducted for a US domiciled ETF for a non-US resident?

Post by imbroke2 »

I know that non-US residents should invest in UCITS etfs.

Im just curious on how are the 30% taxes deducted for a non-US investor when a 1) US listed distributing etf issues dividends and 2) when a US listed accumulating etf issues dividends.

what about capital gains tax? what is the tax rate for non-US residents? how will this capital gains tax be deducted?

my guess is ur broker account will receive the dividends/proceeds from sale net of taxes. which means non-US investors do not need to worry about paying the taxes themselves. am i right?
TedSwippet
Posts: 3747
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: how are the 30% taxes deducted for a US domiciled ETF for a non-US resident?

Post by TedSwippet »

The answers are all in this wiki page: Nonresident alien taxation - Bogleheads

In summary:
  • The broker withholds the 30% (or lower treaty rate, if applicable) on dividends paid by US stocks and US domiciled ETFs (your case 1)
  • US tax law does not permit the formation of US domiciled accumulating ETFs, so the question of these does not arise (your case 2)
  • The US does not tax capital gains of most US assets held by nonresident aliens (except for real estate; here special rules apply)
Provided everything is set up correctly, the brokerage account receives dividends net of any US tax due, sale proceeds are US tax free, and there is then no need to tangle with the IRS, file any US tax return, and so on. (If things are not set up correctly, the usual case is over-withholding for a resident of a country with a US tax treaty, requiring a 1040-NR to recover the balance.)
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galeno
Posts: 2316
Joined: Fri Dec 21, 2007 12:06 pm

Re: how are the 30% taxes deducted for a US domiciled ETF for a non-US resident?

Post by galeno »

This 30% is on top of the L1WT of all the non-USA domiciled corporations in the ETF.

If I were forced to use a USA domiciled equity ETF again I would buy and hold VTI (100% USA) and not VT (60% USA).
KISS & STC.
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