Non-US citizen with US Brokers: Estate Tax risk?

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Micks
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by Micks »

SurferD wrote:Hi All,
I must say this post is disheartening..I have just opened a US based IB account and also have started investing in Ireland domiciled ETFs like many on here and this is an added worry now. I guess the only hope is to see if eventually we can transfer our holdings to IB UK (with the associated downsides).

Hopefully we can find a solution
SurferD
I do not think that transferring to IBUK will have an impact at this moment (if at all possible). The link posted upthread by saver007 mentions that: "Currently, IB UK clears all client activity through IB LLC with the exception of physical commodities (i.e., gold and silver) and those CFDs which are not exchange listed.". I think their transferring of more activities to the UK branch is a good sign though for us international investors.

I have an account with a Dutch reseller of IB and on their website they say that I will only fall under FSCS compensation (UK) for forex, futures, options and commodities. All the rest (including a cash balance) is covered by the SIPC (US). So I think the info posted in this thread is correct, best to hold non-US domiciled ETFs and keep the cash balance under 60,000 USD (even when transferring your US assets, like TedSwippet mentions).
Kind regards, Mick
SurferD
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by SurferD »

Micks wrote:So I think the info posted in this thread is correct, best to hold non-US domiciled ETFs and keep the cash balance under 60,000 USD (even when transferring your US assets, like TedSwippet mentions).
Thanks Micks, it is a good sign they are looking at changes to help NRA investors and we should all keep making enquiries as to when this will happen to avoid the Death taxation altogether and maybe this will motivate them to do what is best for all customers and facilitate what we require sooner.

I am very happy with IB since I started just a few short weeks ago and have already done my trades and found it very simple and easy to use even though I am a novice trader in reality, and they have been great in answering questions too so I hope I can continue with them for the long haul rather than move again somewhere else.

I have exceeded the 60K limit so I better watch out for buses in the meantime :)

Thanks for the feedback and reply
SurferD
liksah
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by liksah »

Did any of you use an IBC or something for your US investments? I have a growing portfolio with IB USA and as an NRA am a bit nervous about the estate tax risk. What should I do at this point of time? I'm not sick but the years are getting on.

My investments are NOT in US domiciled etfs but into Vanguard Ireland funds. But all this talk about changing laws etc makes me quite nervous. Also TedSwippet commented on another thread about the process and there were lots of US IRS forms mentioned and a 9 month delay... Ugh!

Currently my account is setup like this:

1. IB USA account
2. Jointly held with my wife
3. About $700k in Ireland domiciled funds

Not a US person (non-resident, non-citizen).

Now I'm thinking I should've started an IBC/Corporation and done everything through that. Is it still possible to transfer the contents or even the IB account to an IBC? Any insight into something like this about he HUGELY appreciated!
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galeno
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by galeno »

We use an IBC because until recently we used a USA domiciled broker and held USA domiciled ETFs. We now use IB and use Ireland domiciled ETFs. We regularly wire transfer the accumulated IB MMF cash to our domestic bank account when it gets near $60K.

Since the low start up costs are sunk and the yearly maintenance costs negligible, we continue to use the IBC.

For now, using IB and Ireland domiciled ETFs is the way to go. The only non-USA domiciled broker to consider is Saxon Bank. It is still to expensive however.
KISS & STC.
TedSwippet
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by TedSwippet »

liksah wrote:But all this talk about changing laws etc makes me quite nervous. Also TedSwippet commented on another thread about the process and there were lots of US IRS forms mentioned and a 9 month delay...
You can relax. You have done everything sensible to counter both unnecessary US dividend tax and any potential US estate tax liability. The only thing you have to pay attention to now is avoiding holding more than $60k in cash holdings at the broker. That should be relatively straightforward since a brokerage account is one of the worst places to hold cash anyway!

What remains, if it were even to be applied to you at all -- they way brokers interpret US estate tax compliance for NRAs appears to be... uneven -- is just paperwork and potential delay. The forms are fiddly, but the main aggravation is marshalling all of the death and probate certificates needed to accompany it, and that's just standard estate wind-up activity that would probably have to happen with or without any US connection anyway.

The delay in the IRS release process is annoying, but not close to worth reorganizing everything over. In a pinch, with joint ownership of the account I can easily see how one might, er, "forget" to inform a brokerage of a death while completing some asset shuffling, if that's expedient.
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in_reality
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by in_reality »

liksah wrote:But all this talk about changing laws etc makes me quite nervous. Also TedSwippet commented on another thread about the process and there were lots of US IRS forms mentioned and a 9 month delay... Ugh!
I'd put the account into a revokable trust (so it transfers without probate). Before the brokerage will transfer it to the beneficiary(ies) though, they will need an original “Transfer Certificate” (IRS Form 5173) received from the Internal Revenue Service. You DO NOT do a 706-NA (which is only when US assets are over $60k)

see https://www.irs.gov/businesses/small-bu ... s-citizens

Note: The time frame for the IRS to process the affidavit and supporting documents is 90 days from the time the IRS receives all necessary documentation.
If the value of the decedent's taxable assets in the United States (read the Instructions for Form 706-NA to determine which types of assets are taxable) was $60,000* or less on the date of death, please submit the following items to the Department of the Treasury, Department of the Treasury, Internal Revenue Service, STOP 824G, Cincinnati, OH 45999.

* Copies of the decedent's last will and testament along with any codicils. Please include English translations if in another language.

* One copy of each death tax or inheritance tax return and any corrective statements filed with taxing authorities other than the United States. Please include English translations if in another language.

* One copy of the decedent's death certificate. Please include English translation if in another language.

An affidavit, which is a written declaration made under oath before a notary public or other comparable local official. The affidavit may be in the form of a letter. It must be signed by the executor, administrator, or other personal representative of the estate and include all of the following items:
* The decedent's date and country of birth.
*The date of the decedent's naturalization as a United States citizen, or a statement that the decedent had never become a naturalized U.S. citizen.
* A list of all the decedent's United States assets in which the decedent had any interest at the date of death (whatever may be their legal situs for U.S. estate tax purposes) and their values at the decedent's date of death. For any U.S. bank or investment account, please include the account number.
* The decedent's citizenship and residence at the date of death.
* Whether any of the decedent's U.S. bank accounts were used in connection with a trade or business in the United States.
* If any of the above-listed items are not available, include a statement to explain why.
So my questions would be:

1) if using a trust, would you submit that documentation in addition to any will and testament.
2) when listing US assets, would you include non-us situs ETFs but mark them as such. It seems like you would.

It's doesn't seem like a great burden. You could have most of it ready to go in a safe place, update the affidavit for account values and date of death, get the death certificate, and make a copy of any foreign estate tax forms you submit, then just get it signed.
bsteiner
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by bsteiner »

smackboy1 wrote:... There is a lot of questionable information on this thread ....
Agreed.
Caduceus wrote:... In what ways does having life ... insurance not mitigate the estate tax risk exposure? ....
It's one type of investment that a nonresident alien can use to avoid U.S. estate tax. However, there are costs to life insurance, and there are other ways to avoid U.S. estate tax.
vijayvijayakv wrote:... I have almost 350K invested in US based brokerage with all US stocks. Can someone point me additional information as to how NRA investor go about starting to explore foreign holding company to invest in US property using US brokerages virtually all the US estate/gift tax problems disappear ( as commented in earlier thread)

Is the opening a foreign holding company within the reach of investors like me who are not super wealthy. How does one go about this? how much does this cost? ...
Your lawyer can give you more information on this. But there's a large range between $350,000 and super-wealthy.
in_reality wrote:... I'd put the account into a revocable trust (so it transfers without probate). ...
There's a cost to that, probably comparable to the cost of probating the Will; and you have to write the check for the revocable trust whereas someone else writes the check for probating the Will.

It would be helpful to know in what country the original poster resides, since the planning may vary based on which country it is.
liksah
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by liksah »

TedSwippet wrote:
liksah wrote:But all this talk about changing laws etc makes me quite nervous. Also TedSwippet commented on another thread about the process and there were lots of US IRS forms mentioned and a 9 month delay...
You can relax. You have done everything sensible to counter both unnecessary US dividend tax and any potential US estate tax liability. The only thing you have to pay attention to now is avoiding holding more than $60k in cash holdings at the broker. That should be relatively straightforward since a brokerage account is one of the worst places to hold cash anyway!

What remains, if it were even to be applied to you at all -- they way brokers interpret US estate tax compliance for NRAs appears to be... uneven -- is just paperwork and potential delay. The forms are fiddly, but the main aggravation is marshalling all of the death and probate certificates needed to accompany it, and that's just standard estate wind-up activity that would probably have to happen with or without any US connection anyway.

The delay in the IRS release process is annoying, but not close to worth reorganizing everything over. In a pinch, with joint ownership of the account I can easily see how one might, er, "forget" to inform a brokerage of a death while completing some asset shuffling, if that's expedient.
Thanks for the reassurance. I suppose these things are simpler in the presence of a will? Because I understand that if I am not from the US then it becomes more difficult to verify what type of inheritance laws apply?

I just want to have everything organised for my beneficiaries just in case and don't want them to deal with a lot of hassle.
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in_reality
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by in_reality »

bsteiner wrote:
in_reality wrote:... I'd put the account into a revocable trust (so it transfers without probate). ...
There's a cost to that, probably comparable to the cost of probating the Will; and you have to write the check for the revocable trust whereas someone else writes the check for probating the Will.
My understanding is the brokers use State law to name a beneficiary, so for those overseas it's not possible. Thus, the account would have to go through probate, and probating an estate in a different country would worry me. For example, in order to sell or transfer US Securities in a deceased person’s name, many brokers require a medallion signature. Can't these be difficult for an NRA to get. I see one UK company offering them for £ 245/stamp though.

I'm not suggesting NRAs can't get the paperwork to do it, it just seems having it done in advance would save beneficiaries who may not be familiar with US probate and tax laws to have one less thing to deal with.
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by bsteiner »

in_reality wrote:
bsteiner wrote:
in_reality wrote:... I'd put the account into a revocable trust (so it transfers without probate). ...
There's a cost to that, probably comparable to the cost of probating the Will; and you have to write the check for the revocable trust whereas someone else writes the check for probating the Will.
My understanding is the brokers use State law to name a beneficiary, so for those overseas it's not possible. Thus, the account would have to go through probate, and probating an estate in a different country would worry me. For example, in order to sell or transfer US Securities in a deceased person’s name, many brokers require a medallion signature. Can't these be difficult for an NRA to get. I see one UK company offering them for £ 245/stamp though. ....
It depends on the country. We've probated Wills in the United States that were then probated in the UK and Canada.

A nonresident alien executor could name a U.S. person as executor or administrator for the U.S. assets.
orenplen
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by orenplen »

For now, using IB and Ireland domiciled ETFs is the way to go. The only non-USA domiciled broker to consider is Saxon Bank. It is still to expensive however.
Hi Galeno,

Since I am in a similar position as you (non-american resident holding Irish-domiciled ETFs via IB), I was wondering what's your opinion on the fact that by holding Irish ETFs, while being free of estate tax-risk, you are not covered by the SIPC with a limit of 500K USD, but ratger by the FSCS with a limit of only 50K GBP?

I am in a real dilemma. Because while estate tax is a bummer, having my kids be left with about 30% less assets (actually hopefully much more, because it's only 30% of the portfolio, so it does not include our pension plans, an apartment we wish to buy, etc.), the danger of finding out one day that all of my savings are lost due to some fraud or scam - during MY lifetime, seems a much more disturbing, difficult to live with, issue. I know the odds are really low, but it seems that the damage in case the odds do happen, is significantly worse.

Thanks.
rijk
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by rijk »

my understanding is that any assets, including us stocks and cash, in ib uk accounts owned by european nras do not run any us estate tax risk as these accounts are uk domiciled for tax purposes

does this sound right?

thanks in advance
regards,
rijk
TedSwippet
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by TedSwippet »

rijk wrote:my understanding is that any assets, including us stocks and cash, in ib uk accounts owned by european nras do not run any us estate tax risk as these accounts are uk domiciled for tax purposes ... does this sound right?
No. It is the domicile ('situs') of the assets held in the account, not the domicile or location of the account's provider or custodian itself, that gives rise to potential US estate tax issues.

If you are a US NRA in a country without a US estate tax treaty, you risk US estate taxes if you hold US domiciled ETFs in either a US or a non-US brokerage account, or if you hold cash in a US brokerage account. Other combinations are okay. Summarised in the table below:

Code: Select all

                        US broker     Non-US broker
Non-US domiciled ETF    Okay          Okay
US domiciled ETF        AVOID         AVOID
Cash                    AVOID         Okay
A US estate tax treaty may provide some protection, but if covered you would want to read it very carefully to be sure.

A US broker is obviously closely bound by the rules and regulations of the IRS, and so in a much better position to enforce US estate taxes on NRAs. A non-US broker, on the other hand, may not be quite so strictly bound by US regulation. They may also it seems be "unaware" -- either genuinely or perhaps 'conveniently' -- that the US expects estate taxes from dead NRAs, and moreover kicks in its estate taxes at absurdly low levels, only a little over 1/100 of the allowance given to US citizens.

In most cases, the best method for NRAs to isolate themselves from US estate taxes entirely is to avoid US domiciled ETFs and directly holding US stocks or real estate, and instead invest into the US either through non-US domiciled ETFs or, if holding US stocks or real estate in excess of $60k, though intermediate holding companies.
rijk
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by rijk »

thanks, that's surprising to say the least.....

so you are basically saying that if i own vxus (us domiciled - international stocks) in a local brokerage account in europe and the country where i hold this brokerage account doesn't have a us estate tax treaty, then i would be liable for 40% tax?

if this is the case, are you aware of any successful irs claims/collections that correspond to this example?

what about us stocks held with ib uk?

regards,
rijk
TedSwippet
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by TedSwippet »

rijk wrote:so you are basically saying that if i own vxus (us domiciled - international stocks) in a local brokerage account in europe and the country where i hold this brokerage account doesn't have a us estate tax treaty, then i would be liable for 40% tax?
If you hold more than $60k in aggregate in 'US situs assets' (including VXUS) and have the poor judgement to die while doing so, then yes. It is the domicile of the ETF, not what it holds, that matters here. VXUS is in effect, and from the tax perspective, just another US share.

The word "surprising" is too small for the majestic lack of logic embedded in this policy. But it is what it is.
rijk wrote:if this is the case, are you aware of any successful irs claims/collections that correspond to this example?
Honestly, no. I suspect non-US brokers do not -- and are really not interested in -- enforcing US estate tax laws against their own non-US customers. Many of them probably do not know the precise rules anyway. Not least because as we have seen, the US estate tax rules for NRAs make no sense at all.

But... that doesn't mean they will not be compelled by FATCA or something similar to start enforcing it in future. For example, there are articles such as this one which shrieks about how NRAs who do not feel like paying usurious and absurd rates of US estate tax to a country in which they do not live and from which they receive no services are nevertheless "costing us [the US] billions."
rijk wrote:what about us stocks held with ib uk?
A UK branch or offshoot of a US broker? Honestly, don't know. You can probably ask them, but if you do I would be careful about trusting whatever answer they give, as I suspect they may well be as clueless about this area as most people are in general.

The remedy to sidestep all of this nonsense this is simple enough: Invest instead through Ireland or other non-US domiciled ETFs, for example these Vanguard ones, and avoid the US domiciled ones. As a bonus, if your country has no US income tax treaty you will also cut -- by at least half and up to fully 100% -- the US taxes you pay on dividend payments.
vstariradev
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by vstariradev »

That's a fantastic thread discussing the topic in great detail but I still think one thing is missing for it to be complete and that is:
How will we know that the situation discussed above is about to change or has changed already?

Relying on proactive fellow non-US citizens in the same situation to post here isn't reliable source as we're not obliged to post. Stock news sources are noise and speculation (we all know that) so it appears we're left with having to read through each new law the US decides to pass.
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Hyperborea
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by Hyperborea »

galeno wrote: Mon Nov 24, 2014 3:37 pm "Something to keep in mind: if an NRA investor uses a foreign holding company to invest in US property using US brokerages virtually all the US estate/gift tax problems disappear."

When we switched from (expensive) Bank of Bermuda to (cheaper) Schwab 15 years ago, we we told to create a "family holding corporation" in Panama.

The Panamanian IBC (international business corporation) has a corporate account with Schwab.

We are now considering forming a family trust which will own the nominal shares of the Panamanian IBC. Our attorneys and accountants are looking a using a trust from Nevis.
What was involved in setting up the IBC? What kind of paperwork and costs both initial and yearly? What about taxes in Panama on the corporation? On the other side of it, how difficult is it to set up accounts in the US that belong to the IBC - both brokerage and bank accounts?

The main purpose would be to block US estate tax issues but there is an interesting possibility to turn capital gains into dividends. For one potential future domicile (Portugal) I would pay tax on capital gains but not dividends so having capital gains owned by the corporation in Panama and then paid out to the shareholders (me and my wife) as dividends would sidestep that issue.
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galeno
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by galeno »

Our Costa Rican attorney set up the Panamanian IBC for us via one of his lawyer colleagues in Panama. We pay him an annual fee and he takes care of all the details.
KISS & STC.
olliric
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by olliric »

I have a brokerage account with Schwab in the US and the cash is held in a sweep money market fund which is domiciled in Ireland. I believe the estate tax does not apply in this case even above the 60K. Am I correct?
Even without reading this tread I noticed that before, when I had cash in the account but not in the "offshore fund" as Schwab calls them, I used to pay withholding tax on the interest. Since it is in the sweep Irish fund no tax is withheld.
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by TedSwippet »

olliric wrote: Thu Jun 20, 2019 11:39 am I have a brokerage account with Schwab in the US and the cash is held in a sweep money market fund which is domiciled in Ireland. I believe the estate tax does not apply in this case even above the 60K. Am I correct?
It sounds as if this is okay. The important thing is that this is not a cash balance in the brokerage account. A 'cash' fund or ETF would be fine (as long as it is not US domiciled, of course).
olliric wrote: Thu Jun 20, 2019 11:39 am Even without reading this tread I noticed that before, when I had cash in the account but not in the "offshore fund" as Schwab calls them, I used to pay withholding tax on the interest. Since it is in the sweep Irish fund no tax is withheld.
Hmm. The US does not generally tax interest paid to nonresident aliens. From IRS Pub 519:
Interest Income
Interest income that is not connected with a U.S. trade or business is excluded from income if it is from:
- Deposits (including certificates of deposit) with persons in the banking business,
- Deposits or withdrawable accounts with mutual savings banks, cooperative banks, credit unions, domestic building and loan associations, and other savings institutions chartered and supervised as savings and loan or similar associations under federal or state law (if the interest paid or credited can be deducted by the association), and
- Amounts held by an insurance company under an agreement to pay interest on them.
So if it was paid by a bank, credit union and so on, no tax. However, there's no specific exception here for brokers, so maybe that is the issue. The same reasoning -- if you can call it that! -- as for the US estate tax on cash above $60k in a broker, but not in a bank. Did you query it directly with Schwab? It would be interesting to know their logic here.

Thanks for the report, anyway. Posts like this one really help to build up a picture of exactly how the US tax code continues to throw unpleasant surprises at nonresident aliens. I will see about adding this detail to the appropriate part of the wiki.
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galeno
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by galeno »

You are correct. We used to use Schwab International. Excellent broker but very limited selection on non-USA domiciled assets. We switched to IB about 4 years ago. Much better selection as they allow trading on the LSE (London Stock Exchange) on which we buy and sell Ireland Vanguard and I-shares stock and bond ETFs.
olliric wrote: Thu Jun 20, 2019 11:39 am I have a brokerage account with Schwab in the US and the cash is held in a sweep money market fund which is domiciled in Ireland. I believe the estate tax does not apply in this case even above the 60K. Am I correct?
Even without reading this tread I noticed that before, when I had cash in the account but not in the "offshore fund" as Schwab calls them, I used to pay withholding tax on the interest. Since it is in the sweep Irish fund no tax is withheld.
KISS & STC.
olliric
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by olliric »

galeno wrote: Thu Jun 20, 2019 2:28 pm You are correct. We used to use Schwab International. Excellent broker but very limited selection on non-USA domiciled assets. We switched to IB about 4 years ago. Much better selection as they allow trading on the LSE (London Stock Exchange) on which we buy and sell Ireland Vanguard and I-shares stock and bond ETFs.
Thanks for chasing away estate tax anxiety for my Schwab sweep fund. I am looking for another broker or bank after Degiro.ch closed my account after I had it opened for 1.5 months because I was Thai residendent. This was despite having it connected to Fineco Bank in Italy. They have introduced this type of limitation 6 months ago. I don't want to use Fineco Bank brokerage. They give a very handy multi currency account with no currency exchange spread and debit card with no currency conversion spread all at no cost but they don't list USD denominate ETF domiciled in EU and US treasuries but they can add them upon request so technically they can be used. The main drag is the 0.2% tax on the account value.
I have enquired Saxo and Interactive Brokers which are the only two that are probably viable. Saxo DK accept Thai residents but I think has a nasty 0.12% custody fee that if they can't negotiate out is a deal breaker.
Interactive Brokers has no custody fee but there is the lingering issue of the estate tax on the cash in the account. Would that be different if I were to sign up with IB UK?
Is it possible to sign up with IB in the UK for a non UK resident? It is not for Fineco UK and for Saxo UK (they say it is ok for Saxo DK).
If I sign up with IB US do they have a non US sweep money market fund for the cash like Schwab?
Are there other issues with US taxation as compared to someone like Saxo DK?
Is there some Wiki about chosing the right broker/bank for NRA?
If you think this is a bit off topic please send me a message, thanks
olliric
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by olliric »

TedSwippet wrote: Thu Jun 20, 2019 12:56 pm So if it was paid by a bank, credit union and so on, no tax. However, there's no specific exception here for brokers, so maybe that is the issue. The same reasoning -- if you can call it that! -- as for the US estate tax on cash above $60k in a broker, but not in a bank. Did you query it directly with Schwab? It would be interesting to know their logic here.

Thanks for the report, anyway. Posts like this one really help to build up a picture of exactly how the US tax code continues to throw unpleasant surprises at nonresident aliens. I will see about adding this detail to the appropriate part of the wiki.
Schwab withheld tax on the cash for years. I really hope based on the probably correct assumption you mentioned regarding brokerage account being different from banks when it comes to cash (a bank versus an investment company I think is the logic). Schwab then told me they would move my account from Schwab US to Schwab UK which they did. Once I was under the UK branch some UK bloke offered me the sweep fund which I jumped on. I wish they did that when I was in Schwab US for years (cluless Schwab!!). The people that aswer the phone at Schwab have little idea about the taxation issues. When I enquired I had multiple and contradicting replies times and times again. Based on their answers I came to the wrong assumption that I would have to pay withholding tax on bond interest (which I believed as I was paying tax on the interest of the cash) and on the Bond ETF dividents. In retrospective their wrong advice cost me dearly and forced me to move money to and Italian bank. Very sad to see that the 4th largest ETF issuer and major and very long established brokerage does not have a number to call on tax issues.
Some two years ago they told me they would move me back to Schwab US which they did. They were not very open regarding the reason of going back to USA, they just mention regulation which I suspect is the same that does not allow Saxo UK or Fineco UK to open accounts for non UK residents like myself.
To put all the pieces together and considering more or less the same timing I add the last piece of info in my experience. Two days ago Degiro NL closes my brokerage account because I am not an EU resident, they say it used to be ok. So it seems that EU regulation restrict brokerage accounts from having customers resident outside EU. I will soon find out if Saxo DK will follow suit and won't allow me to sign up. If it is ok for them I suspect is because they are not yet aware of the new regulation, they are a licenced bank so maybe the regulation does not apply to them or because they have special treatment as they have their own currency and possibly more leeway as compared with the other EU countries.
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by typical.investor »

olliric wrote: Fri Jun 21, 2019 12:59 am
TedSwippet wrote: Thu Jun 20, 2019 12:56 pm So if it was paid by a bank, credit union and so on, no tax. However, there's no specific exception here for brokers, so maybe that is the issue. The same reasoning -- if you can call it that! -- as for the US estate tax on cash above $60k in a broker, but not in a bank. Did you query it directly with Schwab? It would be interesting to know their logic here.

Thanks for the report, anyway. Posts like this one really help to build up a picture of exactly how the US tax code continues to throw unpleasant surprises at nonresident aliens. I will see about adding this detail to the appropriate part of the wiki.
Schwab withheld tax on the cash for years. I really hope based on the probably correct assumption you mentioned regarding brokerage account being different from banks when it comes to cash (a bank versus an investment company I think is the logic). Schwab then told me they would move my account from Schwab US to Schwab UK which they did. Once I was under the UK branch some UK bloke offered me the sweep fund which I jumped on. I wish they did that when I was in Schwab US for years (cluless Schwab!!). The people that aswer the phone at Schwab have little idea about the taxation issues. When I enquired I had multiple and contradicting replies times and times again. Based on their answers I came to the wrong assumption that I would have to pay withholding tax on bond interest (which I believed as I was paying tax on the interest of the cash) and on the Bond ETF dividents. In retrospective their wrong advice cost me dearly and forced me to move money to and Italian bank. Very sad to see that the 4th largest ETF issuer and major and very long established brokerage does not have a number to call on tax issues.
Some two years ago they told me they would move me back to Schwab US which they did. They were not very open regarding the reason of going back to USA, they just mention regulation which I suspect is the same that does not allow Saxo UK or Fineco UK to open accounts for non UK residents like myself.
To put all the pieces together and considering more or less the same timing I add the last piece of info in my experience. Two days ago Degiro NL closes my brokerage account because I am not an EU resident, they say it used to be ok. So it seems that EU regulation restrict brokerage accounts from having customers resident outside EU. I will soon find out if Saxo DK will follow suit and won't allow me to sign up. If it is ok for them I suspect is because they are not yet aware of the new regulation, they are a licenced bank so maybe the regulation does not apply to them or because they have special treatment as they have their own currency and possibly more leeway as compared with the other EU countries.
The folks in the Schwab International office have been consistent about telling me they don’t give tax advice. It’s not something, especially given the myriad possibilities with different laws, that they can do. I am rather surprised they didn’t say that.
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by olliric »

typical.investor wrote: Fri Jun 21, 2019 2:23 am The folks in the Schwab International office have been consistent about telling me they don’t give tax advice. It’s not something, especially given the myriad possibilities with different laws, that they can do. I am rather surprised they didn’t say that.
They would say that to mee too. I don't want them to give me tax advice on the tax I need to pay, I would not even dream about it. But I do expect they would tell me what they take from my account on behalf of IRS. As I hope they don't take money from your account randomly they must know what to take based on your W8-BEN. So somebody in their organization knows all about it and sets up your account so the withholding is automatic. The best should be that the platform should flag the products where withholding or Estate tax applies so you can choose what is best for you, I don't think is that complicated given that they already have that in the sistem generating the deductions automaticaly.
The alternative is to have a proper information sheet that explains what we have discovered on our own experience. Schwab has a leaflet written in accounting English that is not very clear or complete.
As they have people that have the correct news and answers they shoul make them available, by a dedicated number, automatically on the platform or via links to docs on their site.
It all boils down to the so recurrent issue these days of people in large organization that don't have enough balls to make right statements on things they know. Even i they know and are sure they won't say it due to the 1 in a million chance that they may be proved wrong and pay for it.
This goes against their company best interest, fosters mediocracy and cost the company lots of money. In my case they lost over a million of AUM for 5 years because the lack of information they would provide on Uncle Sam ransacking habits they rightly enforce which eventually scared me off investing with Schwab. I have just read a book by Andrew Hallam (Global Expatriate's Guide to Investing_ From Millionaire Teacher to Millionaire Expat) in which he says time and time again to stay away from US domiciled investments and brokers. He suggest various brokers but none such as Interactive Brokers which it may turn out to be by far the best for any expat NRA. And this is a guy that writes books and blogs about people like us. Or maybe not, we are actually Bogleheads :D
ICH
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by ICH »

olliric wrote: Fri Jun 21, 2019 3:11 am. I have just read a book by Andrew Hallam (Global Expatriate's Guide to Investing_ From Millionaire Teacher to Millionaire Expat) in which he says time and time again to stay away from US domiciled investments and brokers. He suggest various brokers but none such as Interactive Brokers which it may turn out to be by far the best for any expat NRA. And this is a guy that writes books and blogs about people like us. Or maybe not, we are actually Bogleheads :D
There is a reference to IB in his new book.
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by msk »

My solution at the moment after closing my brokerage accounts at TDAmeritrade since they do not allow me to purchase Ireland situs ETFs:

Opened accounts at IB (no clue whether US, UK, Singapore, etc.) Joint with Survivor Rights with my wife, linked to a local bank account (USD not local currency) that is similarly Joint. Local banks automatically get official notifications of death and they are supposed to freeze accounts till probate is sorted out (generally 6 months) but I expect they will allow incoming deposits from other countries, but not withdrawals since the local law is to protect heirs who are not on the account. Enforcement seems haphazard. Some banks do not freeze such Joint accounts since it may put widows into financial problems.
Showed wife how to sign on at IB and instructed her to sell everything and transfer cash to our local bank account. Named executor of my will also has his own account at IB, so provided he gets all the passwords he can effect sale and transfer without hassle. One of the advantages of an internet brokerage. I keep very little cash at IB and all my ETFs are Ireland situs.

Only remaining issue is what if DW and myself die simultaneously in an accident? No idea how rare this is :confused Does IB have joint accounts with 3 names? I could add the executor of my will as Joint with Survivor Rights. But then we will also need a local bank account held jointly by the same 3 names. Perhaps we over worry.
olliric
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by olliric »

msk wrote: Fri Jun 21, 2019 5:15 am My solution at the moment after closing my brokerage accounts at TDAmeritrade since they do not allow me to purchase Ireland situs ETFs:

Opened accounts at IB (no clue whether US, UK, Singapore, etc.) Joint with Survivor Rights with my wife, linked to a local bank account (USD not local currency) that is similarly Joint. Local banks automatically get official notifications of death and they are supposed to freeze accounts till probate is sorted out (generally 6 months) but I expect they will allow incoming deposits from other countries, but not withdrawals since the local law is to protect heirs who are not on the account. Enforcement seems haphazard. Some banks do not freeze such Joint accounts since it may put widows into financial problems.
Showed wife how to sign on at IB and instructed her to sell everything and transfer cash to our local bank account. Named executor of my will also has his own account at IB, so provided he gets all the passwords he can effect sale and transfer without hassle. One of the advantages of an internet brokerage. I keep very little cash at IB and all my ETFs are Ireland situs.

Only remaining issue is what if DW and myself die simultaneously in an accident? No idea how rare this is :confused Does IB have joint accounts with 3 names? I could add the executor of my will as Joint with Survivor Rights. But then we will also need a local bank account held jointly by the same 3 names. Perhaps we over worry.
It probably would work in your case. The way I see it is to make sure to keep Uncle Sam hands off my savings. So as long that cash is below 60K, equities ETFs are domiciled not in the US, and there are no real estate investement of any kind I think one should not worry. The probate will be likely be speedy and no tax are taken. Just the bureocratic hassle and lawyer costs which the lucky heirs can handle.
The only area that maybe be risky is bond ETF domiciled in US. Although US bonds are safe from Estate Tax bond, ETF may not as they are from a US domiciled company. I think Bond ETF domiciled in US are not subjected to withholding tax so I wonder if that rationel shelther them from Estate Tax as well. Does anyone here know for sure?
olliric
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by olliric »

ICH wrote: Fri Jun 21, 2019 3:50 am
olliric wrote: Fri Jun 21, 2019 3:11 am. I have just read a book by Andrew Hallam (Global Expatriate's Guide to Investing_ From Millionaire Teacher to Millionaire Expat) in which he says time and time again to stay away from US domiciled investments and brokers. He suggest various brokers but none such as Interactive Brokers which it may turn out to be by far the best for any expat NRA. And this is a guy that writes books and blogs about people like us. Or maybe not, we are actually Bogleheads :D
There is a reference to IB in his new book.
Good, better late than never. Still, the book has been read by many for years which probably has let to lots of greef and extra costs for all involved. Andrew should have done better homework. Getting misleading info from a free forum in acceptable but not from a book which one pays for it.
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by galeno »

We too wasted a lot of money on 30+% equity dividend taxes when we used Schwab International. For equity we used Schwab indexed ETFs. For bonds we either used USA FDIC insured CDs or we'd buy ONE 5 yr US treasury note. No 30% interest income taxes on these. So weird.
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olliric
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by olliric »

galeno wrote: Fri Jun 21, 2019 2:11 pm We too wasted a lot of money on 30+% equity dividend taxes when we used Schwab International. For equity we used Schwab indexed ETFs. For bonds we either used USA FDIC insured CDs or we'd buy ONE 5 yr US treasury note. No 30% interest income taxes on these. So weird.
The US tax laws are far from clear but it was correct for you not to pay tax on interest in CDs and bonds.
To keep the withholding taxes to the minimum (as per treaty rate for the country of your residence on your W-8BEN form) and don't risk the Estate Tax upon death the way I understood it is as follow, please someone pitches in if not accurate:

Brokerage firms in the US are ok for a NRA (Non Resident Alien) as long as you sticks to the following:

1. Keep cash below 60K (the threshold upon which Estate Tax kicks in). In this case interest is taxed at treaty rate because the money is in a broker account and not a bank.
2. If the broker offers it (Schwab does) keep the cash in a money market sweep fund domiciled NOT in US. (no withholding or estate tax applies).
3. Don’t hold US companies’ single stocks as they are subjected to Estate Tax, even if held in non US banks. Instead buy ETFs or funds containing US stocks but the ETF or fund are domiciled in Europe. In this case withholding tax on dividends applies as per treaty rate but not the Estate Tax. Stocks of non US companies are fine even if held in the US.
4. Single bonds (corporate or government) are not subjected to withholding or estate tax.
5. Bond ETF domiciled in the US are not subjected to withholding tax on coupons dividend but may or may not be subjected to Estate Tax. Please read “Situ Rules” in link below which seems to indicate that Bond ETF should also be ok. To be safe buy the same Bond ETF domiciled in Europe.
6. Stay away from US real estate property or investments products that own US real estate.

http://www.taxhistory.org/www/features. ... enDocument
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by galeno »

4. Single bonds (corporate or government) are not subjected to withholding or estate tax.

Single USA treasury bonds are not subject to withholding or estate tax. I'm not sure about single corporate bonds.

5. Bond ETF domiciled in the US are not subjected to withholding tax on coupons dividend but may or may not be subjected to Estate Tax. Please read “Situ Rules” in link below which seems to indicate that Bond ETF should also be ok. To be safe buy the same Bond ETF domiciled in Europe.

We held SCHZ for about a year. Schwab withheld 30% of the interest income. That's when we switched to brokered CDs and individual treasury notes. We used a 5 year CD ladder. It's so much easier just buying and holding Ireland domiciled bond ETFs.

6. Stay away from US real estate property or investments products that own US real estate.

I'm totally ignorant about anything regarding US real estate. However 5% of our port is in WSML (MSCI World Small Cap). Notice that its portfolio contains MANY USA REITS.
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by olliric »

galeno wrote: Tue Jun 25, 2019 1:01 pm 4. Single bonds (corporate or government) are not subjected to withholding or estate tax.

Single USA treasury bonds are not subject to withholding or estate tax. I'm not sure about single corporate bonds.

5. Bond ETF domiciled in the US are not subjected to withholding tax on coupons dividend but may or may not be subjected to Estate Tax. Please read “Situ Rules” in link below which seems to indicate that Bond ETF should also be ok. To be safe buy the same Bond ETF domiciled in Europe.

We held SCHZ for about a year. Schwab withheld 30% of the interest income. That's when we switched to brokered CDs and individual treasury notes. We used a 5 year CD ladder. It's so much easier just buying and holding Ireland domiciled bond ETFs.

6. Stay away from US real estate property or investments products that own US real estate.

I'm totally ignorant about anything regarding US real estate. However 5% of our port is in WSML (MSCI World Small Cap). Notice that its portfolio contains MANY USA REITS.
4.I personally have not bought single corporate bonds but this is the excerpt from a Schwab document on taxation which is quite clear. In general it seems that Uncle Sam has not problem with people funding their debt (any kind) but they are not so keen on foreigners having real estate and ownership of their corporations.
Investments which are NOT subject to U.S. estate tax:
• Stock issued by non-U.S. companies
• Non-U.S.-registered mutual funds
• Bonds and commercial paper issued by any U.S. or non-U.S.
issuer (provided interest on such bonds or commercial paper is
exempt from withholding tax as described above)
• U.S. Treasury securities
• U.S. government agency securities
5. This still unclear. You paid withholding tax on SCHZ which also means that Estate Tax would apply (the 2 taxes go together). However there are some evidence that may not always be the case. Fixed income people at Schwab told me that withholding does not apply to bond ETFs.
6. From what I read so fa US located real estate and associated financial products are the most likely to be subjected to Estate Tax and withholding. The physical nature of it makes them so I think.
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by bgreat »

galeno wrote: Tue Jun 25, 2019 1:01 pm We held SCHZ for about a year. Schwab withheld 30% of the interest income. That's when we switched to brokered CDs and individual treasury notes. We used a 5 year CD ladder. It's so much easier just buying and holding Ireland domiciled bond ETFs.
Disclaimer: I don't have experience with this myself (I'm young, so no bonds yet). BUT: people who currently hold SCHZ at Schwab tell me that the withholding is corrected at end-of year (or possibly when the 1042-S is issued, which is March I think?).

On cash interest, I've had 0% withholding as expected. (And a separate 1042-S issued to that effect.)

I'm considering buying one unit of SCHZ just to test.


General comment on this thread: didn't realise how big an issue this estate tax thing was - I'm lucky to be citizen of and resident in a country which has an estate tax treaty with the US guaranteeing equal treatment for both citizens and residents of said country (so I'm covered up to 11 million assets total, along with everyone else I know). But the list of treaty countries is miniscule, and is mostly western europe:
https://www.irs.gov/businesses/small-bu ... ernational

Knowing how strongly the US acts to stop their citizens from investing in non-US vehicles (mostly thinking of PFIC), it's ironic that they actively try to dissuade non-americans from investing in the US (except via non-US vehicles i.e. non-US funds/ETF's).
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by galeno »

I'd love it if someone could explain the LOGIC behind the USA's policies and rules regarding non-USA person investors.
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by typical.investor »

galeno wrote: Thu Jun 27, 2019 12:31 pm I'd love it if someone could explain the LOGIC behind the USA's policies and rules regarding non-USA person investors.
Yeah about that ...
As a matter of logic, furthermore, it is difficult to understand how government entities that represent “the law” can expect compliance if rules are in-administrable because “the rules” are not published, clear, complete, or coordinated.
https://tax.thomsonreuters.com/site/wp- ... -ebook.pdf

This doesn't exclude anyone from figuring out what is required of course, but is just to point out that the complexity and confusion are known and that people are urging for the issues to be addressed (unlikely as that is).
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by AlohaJoe »

bgreat wrote: Wed Jun 26, 2019 11:43 am General comment on this thread: didn't realise how big an issue this estate tax thing was
Yes and no. Bogleheads.org -- both understandably & correctly -- does not encourage or tolerate advice that is not in compliance with the appropriate laws. The law is clear that estate tax is a big problem. In practice, it is also clear that almost everyone ignores it. According to the IRS, in 2014 only 152 people worldwide filed NRA estate taxes showing US equity holdings (and of those, only 93 were from countries without an estate tax treaty; presumably the 59 people from estate tax treaty countries filed but paid little or no actual tax due to the treaty). It is impossible to know what the real number should have been but everyone agrees it isn't that low.

That said, ethical considerations aside, I don't think it is wise for a relatively young investor assume that over the next 20- or 30-years governments won't figure out how to coordinate on all of this. Eventually the US will join CRS and AEOI and it'll expand to cover things like this.
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by TedSwippet »

AlohaJoe wrote: Sat Jun 29, 2019 1:13 amThat said, ethical considerations aside, I don't think it is wise for a relatively young investor assume that over the next 20- or 30-years governments won't figure out how to coordinate on all of this. Eventually the US will join CRS and AEOI and it'll expand to cover things like this.
Yeah. I've referred to this article before on this site, but since it's one of my absolute favourites this gives me an excuse to repeat it:

Look who’s getting away with not paying this estate tax, CNBC, Nov 4, 2015
A back-of-the-envelope analysis by CNBC of estate tax payment patterns and total foreign holdings of U.S. stocks and real estate concluded that the IRS is missing several billion dollars in foreign estate taxes each year — money that could help a cash-strapped U.S. Treasury pay the nation’s bills.
What I like most of all about this article is its shrieking, alarmist, and sanctimonious tone coupled with a complete disregard for the fact that at $60k the US estate tax exemption for nonresident aliens is currently a mere 0.54% of that allowed to a US citizen (it was just over 1% of US citizen rates when the article was written). There can be no US policy justification for impoverishing the family of a nonresident alien who simply held US situated investments on their death. Given the current tax levels and exemptions for foreigners, the US estate tax is barely differentiable from outright confiscation.

Also from the article:
And there are a number of ways for savvy foreigners to plan their estates in advance to avoid having to pay the tax.
As well there should be. We are the 'savvy foreigners' who are using them, and rightly so.
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by typical.investor »

TedSwippet wrote: Sat Jun 29, 2019 7:36 am What I like most of all about this article is its shrieking, alarmist, and sanctimonious tone coupled with a complete disregard for the fact that at $60k the US estate tax exemption for nonresident aliens is currently a mere 0.54% of that allowed to a US citizen (it was just over 1% of US citizen rates when the article was written). There can be no US policy justification for impoverishing the family of a nonresident alien who simply held US situated investments on their death. Given the current tax levels and exemptions for foreigners, the US estate tax is barely differentiable from outright confiscation.
Excuse me. The US has expenses it must cover. Do you honestly believe the regulatory and legal environments have no cost? So you are just entitled to the benefits without any cost. Nice!

If an NRA doesn't like the cost, they are free to move their money someplace else.

Why don't other countries offer better investment opportunities? That's the real question.
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by TedSwippet »

typical.investor wrote: Sat Jun 29, 2019 7:42 amExcuse me. The US has expenses it must cover. Do you honestly believe the regulatory and legal environments have no cost? So you are just entitled to the benefits without any cost. Nice!
Taking between 15% and 30% of a nonresident alien's dividends is perhaps not an unreasonable definition of covering 'costs'. Taking up to 40% of their principal sum invested goes far, far beyond that. It is heavily and overtly discriminatory against nonresident aliens relative to US citizens.
typical.investor wrote: Sat Jun 29, 2019 7:42 amIf an NRA doesn't like the cost, they are free to move their money someplace else.
Or use any of the legal ways to sidestep predatory US taxes.
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by bgreat »

typical.investor wrote: Sat Jun 29, 2019 7:42 am Excuse me. The US has expenses it must cover. Do you honestly believe the regulatory and legal environments have no cost? So you are just entitled to the benefits without any cost. Nice!

If an NRA doesn't like the cost, they are free to move their money someplace else.

Why don't other countries offer better investment opportunities? That's the real question.
That's a false argument. Foreign investors help prop up stock valuations, which ultimately most US residents will rely on for much of their retirement. And foreign investment in US funds helps the US economy because of additional fees earned by those companies running funds. Discouraging foreign investment hurts the US more than anything else.

It's easy to work around some of these issues by buying Ireland-domiciled funds, and suddenly the entire estate tax issue disappears. Tax withholding on the US side stays the same or is in some cases lower (depending on country/treaty) So the estate tax is just hurting US-based funds (but benefits IE based funds), and withholding can also push people into IE funds (unless they live in a country that credits the full withholding and/or have a treaty with lower withholding and/or both).

Withholding gets very interesting and is a different story for every country pair - the likely case is that the tax that my country withholds on dividends paid to americans approximately matches tax withheld by the US on dividends paid to residents of my country. That equation probably changes for other countries, but withholding taxes certainly seem to be a good game for countries with strong companies (which thus attract significant foreign investment).

I'm pretty sure the US is the only place that not only tries to steal non-residents estates but also treats them worse than residents when doing so, and that's really the shocking thing. I can only hope the next world superpower applies something similar to only US citizens in future.
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by galeno »

Ireland ETFs bought and sold on the LE are pretty darn good these days. Ireland Vanguard ETFs (3 ETFs for 75% of port) are our main meal. We fill the gaps with Ireland iShares (2 ETFs 20% of port).
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by international001 »

olliric wrote: Fri Jun 21, 2019 3:11 am I have just read a book by Andrew Hallam (Global Expatriate's Guide to Investing_ From Millionaire Teacher to Millionaire Expat) in which he says time and time again to stay away from US domiciled investments and brokers. He suggest various brokers but none such as Interactive Brokers which it may turn out to be by far the best for any expat NRA. And this is a guy that writes books and blogs about people like us. Or maybe not, we are actually Bogleheads :D
Is very expensive on Amazon. Does it show the same content than his other book: 'Millionaire Expat: How To Build Wealth Living Overseas'?

BTW.. What is bad about being a US-expat and keeping the US brokerage?
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by gougou »

typical.investor wrote: Sat Jun 29, 2019 7:42 am
TedSwippet wrote: Sat Jun 29, 2019 7:36 am What I like most of all about this article is its shrieking, alarmist, and sanctimonious tone coupled with a complete disregard for the fact that at $60k the US estate tax exemption for nonresident aliens is currently a mere 0.54% of that allowed to a US citizen (it was just over 1% of US citizen rates when the article was written). There can be no US policy justification for impoverishing the family of a nonresident alien who simply held US situated investments on their death. Given the current tax levels and exemptions for foreigners, the US estate tax is barely differentiable from outright confiscation.
Excuse me. The US has expenses it must cover. Do you honestly believe the regulatory and legal environments have no cost? So you are just entitled to the benefits without any cost. Nice!

If an NRA doesn't like the cost, they are free to move their money someplace else.

Why don't other countries offer better investment opportunities? That's the real question.
Problem is that the estate tax is unenforceable, and most NRAs are unaware of the estate tax rules in the US. There are some new immigrants that I know whose parents bought homes for them in the US. I think it's pretty unfair that the US will levy a 40% tax on their home when the parents die because it is a small estate and it is used as a home by US residents. Also the tax is only due if the children diligently filed the forms to IRS, which looks like a huge penalty to be compliant.

Estate tax on US stocks is even more absurd and it is clearly unenforceable. The article quoted pretty much says that billion of dollars are not paid because NRAs either willingly or unknowingly disregarded the US estate tax. However, 849 filed the forms with IRS and guess what, they paid $60M for that.

The estate tax law should either be enforced aggressively (which will probably crash US stock market or RE market), or it should not exist in its current form at all.
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by Jing »

IF I use IB,and if IB go broke,whether my stock and etf of Britain will be protect by SIPC?
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by TedSwippet »

Jing wrote: Wed Jul 03, 2019 10:23 am IF I use IB,and if IB go broke,whether my stock and etf of Britain will be protect by SIPC?
You can find some discussion of this in these older threads:

viewtopic.php?t=196465
viewtopic.php?t=216237
viewtopic.php?t=272078
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by international001 »

So let me try to understand. You are US-person (US citizen or US resident) and you pass away. Your US assets are taxed at 40% after $11M to pass them to your heirs. If you are not a US-person, your assets are taxed at 40% after $60k

What about if you are a US-person and you have assets outside US?

What about if your heir is a non-US person and he inherits some US assets? In some countries, there is inheritance tax. For instance in EU, my understanding is that after the new regulation you have to paid based on residency, but I think you can take a credit for the amount paid in US
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by TedSwippet »

international001 wrote: Thu Jul 04, 2019 9:28 am So let me try to understand. You are US-person (US citizen or US resident) and you pass away. Your US assets are taxed at 40% after $11M to pass them to your heirs. If you are not a US-person, your {US} assets are taxed at 40% after $60k.
Pretty much. The US estate tax is graduated. At $60k it is 26%, and it rises to reach 40% at $1MM. For nonresident aliens then, the rate will be somewhere between 26% and 40% on assets above $60k. US citizens see the estate tax as a flat 40% because the $11MM or so exemption swamps all the rates below 40%.
international001 wrote: Thu Jul 04, 2019 9:28 am What about if you are a US-person and you have assets outside US?
For US citizens, the estate tax is on their worldwide assets, not just US situated assets.
international001 wrote: Thu Jul 04, 2019 9:28 am What about if your heir is a non-US person and he inherits some US assets? In some countries, there is inheritance tax. For instance in EU, my understanding is that after the new regulation you have to paid based on residency, but I think you can take a credit for the amount paid in US
Interaction with other countries' estate and inheritance tax regimes is mediated by any US estate tax treaty. Otherwise there may be a credit for non-US death taxes. However, getting the credit may not be easy, because few foreign tax regimes slot neatly into the US model. And there are definitely areas where double-tax is entirely possible.

No unlimited marital exemption. The main get-out clause here is that the miserly $60k exemption for nonresident aliens does not apply where the recipient is a US citizen spouse. There can easily be some horrific outcomes where one spouse is a US citizen and the other not. For example, in such a marriage, if the non-US spouse dies first and the US citizen second, a full $11MM of US situated assets could pass to their children free of US estate tax. If the order of deaths is the other way around, the US could demand over $4MM in estate tax, because of the extremely limited estate tax exemption for nonresident aliens.
international001
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Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by international001 »

Thanks.

I fortgot about that graduation you mentioned in some other threads. It seems absurd that the percentages don't start *after* the exclusion after $11M you jump straight to the 40%!)

Would you know for a non-US citizen but US resident? Are they also taxed for their worlwide assets? That would seem too much of a punishment (and very difficult to enforce). Imagine a rich young sheikh that comes that gets a VISA and comes to the US to do an MBA

I had read the credit could be taken in the country of residency, not US. So perhaps there is some confusion. Also US taxes on the deceased, the other country on the inheritor, so it seems difficult to calculate the limits to the credits (if any), as you would do when you take credits on foreign income.

Non-US citizen wife inheriting may be a big hit. Reading the wikipedia link you offered, it seems it may affect also to the *common* property (!!). Would a foreigner marry a US person knowing that??

IS the following scheme possible? If your kids are US citizens (easy to do), make them your inheritors? IF you pass away, they can gift the money to your deceased spouse (gift limit for US persons is also $11M, and as far as I know, the laws of the country where of the assets is where it applies).
DXBinvest
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Joined: Sun Jul 07, 2019 2:42 pm

Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by DXBinvest »

I read the whole very interesting thread but it seems there is no clear answer really. I still wonder whether Interactive Brokers US is actually the best or the worst choice for non-US person, non-US resident, non-US ties:

1. I think the strongest point of IB for non US person and non-US resident is the SIPC protection. It seems that although foreign currency held at IB US is not covered by SIPC, the actual securities hold in foreign currency are covered up to $250,000. That would make IB (or US SIPC brokers for that matter) having the highest guarantee worldwide. Better than any bank or other broker worldwide.

2. On the other hand the risk lies with US Estate Tax in the event of death. Based on what I read it seems that non-US person and non-US resident holding (non US domiciled) investments at IB US should not be affected or concerned about US Estate Tax upon death. However if the non-US person and non-US resident is holding un-invested account balance of $60,000 or more, this could potentially make US Estate Tax applicable to such person in case of death.

Do I get this right?
Last edited by DXBinvest on Wed Jul 10, 2019 5:25 am, edited 1 time in total.
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