Keeping Vanguard account as Non resident Alien

[saroop]

Hi folks,
I hold a Vanguard personal account as well as a 401k account. I recently moved out of the US and plan to give up my US greencard. Can I continue to operate my Vanguard account (withdraw/invest) even after updating my status to Non resident alien?

Thanks

[Maple]

Hi folks,
I hold a Vanguard personal account as well as a 401k account. I recently moved out of the US and plan to give up my US greencard. Can I continue to operate my Vanguard account (withdraw/invest) even after updating my status to Non resident alien?

Thanks

Hi saroop.

Welcome to the board with your first post and good luck with your move!

I did this several years ago with an investment account, IRA and Roth IRA at Vanguard. My new tax residence is the Philippines, and I updated this with Vanguard (W-8BEN, and other internal Vanguard account details). Everything continues to have worked out fine with the accounts which are now just investment and Roth. At the time, Vanguard had a list of countries which they were ok with and others which they were not ... so, your situation may vary.

You should consider some tax planning too. Knowledgeable Boglehead forum members will raise valid points about potential estate tax risk and potential inefficient dividend taxation. These will depend on the specifics of your situation (tax domicile, investment holdings, etc.).

[TedSwippet]

I hold a Vanguard personal account as well as a 401k account. I recently moved out of the US and plan to give up my US greencard. Can I continue to operate my Vanguard account (withdraw/invest) even after updating my status to Non resident alien?

Maybe. As already mentioned by Maple, it may depend on the country you move to. Have you asked Vanguard directly, and if not, why not?

Also, can you say which country or countries you will be moving to? This will make it possible to offer more information regarding potential US tax hazards.

[LazyNihilist]

Don't want to derail OP's thread, but I am in a situation where I opened accounts on a Work visa and don't have a green card.

I want to know if Vanguard and Fidelity let you keep your personal account and IRA/HSA accounts open and trade with already existing funds if you move to either India or New Zealand.

[123]

Don't want to derail OP's thread, but I am in a situation where I opened accounts on a Work visa and don't have a green card.

I want to know if Vanguard and Fidelity let you keep your personal account and IRA/HSA accounts open and trade with already existing funds if you move to either India or New Zealand.

Vanguard.com is intended for residents of the USA only. If you will be moving out of the USA you should contact Vanguard to determine what your options can be. Trading is accounts held in the USA is not permitted for non-residents. The tax consequences of accounts established under the US tax system could be significantly different for residents and/or citizens of other countries. Accounts established under the US tax system (including tax advantage/deferred accounts) might not be the wisest choice.

Under current law and regulation if you, as a foreign national who is then outside the US, request a distribution from an account held in the US the default action by the custodian would be withhold 30% of the gross proceeds for potential US taxes. That is 30% of the gross proceeds, not 30% of any income or capital gain. You would need to file a US tax return to claim a refund for some or all of that 30%.

[LazyNihilist]

Thanks for this very useful info. 123.

I have most of my funds in Traditional IRA and some in Roth IRA. I don't mind that the gross proceeds are held as long as it is straightforward to claim the refund.

[Maple]

... Trading is accounts held in the USA is not permitted for non-residents ...

This has not been my experience. As a non-resident of the US (resident of the Philippines), Vanguard continues to permit trading.

[LazyNihilist]

I posted the question to both Vanguard and Fidelity. Still waiting for Vanguard to respond.

Below is Fidelity's reply


There are certain eligible countries that Fidelity is able to maintain accounts for. New Zealand is not an eligible country. If you were to move there, your accounts would become restricted from any additional deposit or purchases. You would be limited to liquidating trades and distributions only. We do not sell your investments for you, but you would only be allowed to sell your investments and request distributions from the accounts.

India is eligible and therefore your restrictions would be limited. You would no longer be able to purchase additional mutual fund shares, but you would be able to keep all current investments. You could also continue to trade stocks and ETFs and make additional deposits into your accounts.

Also, from outside the U.S. the Fidelity.com web site may not allow you to complete all transactions online. You may have to call Fidelity for assistance since Fidelity.com was designed to work within the U.S.

[LazyNihilist]

Vanguard did get back to me with a detailed respone.

As a resident of India or New Zealand, you should be able to maintain and
trade within your Vanguard accounts.

You can invest money into your nonretirement account from an international
source by wire. Below, I have provided more information on initiating a
wire and updating your information if you decide to move.

>>> Initiating a Wire >>>

You can wire assets into your Vanguard account from a domestic or foreign
financial institution. To view and print your personalized incoming wire
instructions, please follow these steps:

1. Log on to your account at vanguard.com.
2. At the top of the page, in the search field, enter “Purchase by wire”
and select the magnifying glass icon to perform the search.
3. Select the option to “Wire money to your Vanguard account” from the
search results.
4. Select the account you wish to wire into and follow the instructions.

Please note the following information:

* All incoming wire transfers will be posted to the settlement fund of the
applicable account.

* The only incoming wires that will be accepted for retirement accounts are
asset transfers, direct rollovers, and indirect rollovers. Contributions to
retirement accounts cannot be made via wire transfer.

* On the day that your incoming wire transfer is received, it will be
displayed on your "Order status" page as "Pending." When this occurs, funds
will be immediately available for brokerage purchases or Vanguard mutual
fund purchases. However, it may be necessary to contact us by phone to
place a trade in this situation.

>>> Updating your Information >>>

Currently, you are listed as a resident alien. If you would like to change
your tax-reporting status from resident alien to nonresident alien, we
would need a copy of a government issued photo ID (such as a passport)
proving foreign residence to get started with the process.

Your address should reflect where you reside for tax purposes. If you
intend to maintain a U.S. address, we would also need you to complete the
Reasonable Explanation Checklist for clarification as to why you will be
keeping the address. Please let us know if you wish to do this and we will
send you the appropriate form.

After the documents have been received and reviewed, we would send you
additional information about completing IRS Form W-8.

Nonresident aliens must complete IRS Form W-8, which certifies that the
investor is the beneficial owner of the income and not a U.S. person.

Withholding >>>

Typically, a foreign person with U.S. income is subject to U.S. taxes on
the U.S. generated income. The default nonresident alien withholding rate
is 30%; however, some foreign persons are eligible for a reduced tax rate.
For nonretirement accounts, this applies to dividends and capital gains
whether or not you reinvests the funds.

The U.S. has income tax treaties with a number of foreign countries. Under
these treaties, residents (not necessarily citizens) of foreign countries
are taxed at a reduced rate, or are exempt from U.S. income taxes on
certain items of income they receive from sources within the United States.

You can apply for treaty benefits when completing Form W-8.

If you have any questions about your personal tax situation, we strongly
recommend that you seek advice from a qualified tax professional. You may
also wish to consult with the IRS or visit their website at www.irs.gov.
Vanguard associates cannot provide tax advice.

If you have additional questions, our “Contact us” page is located at:

https://personal.vanguard.com/web/cf/se ... ontact-us/

[TedSwippet]

Vanguard did get back to me with a detailed response.

As a resident of India or New Zealand, you should be able to maintain and
trade within your Vanguard accounts. ...

All fairly positive for you, then. However, as US nonresident alien and a Vanguard client who opened an account while a US resident but now is not, I can attest to the fact that Vanguard's offering for people living outside the US is not seamless with its ordinary operation for US residents.

Here are a few of the frustrations, although none are showstoppers, at least not so far:

• Wiring money out of Vanguard can be problematic. It is difficult to set up a new wire out without a 'medallion signature guarantee', and these are virtually impossible to obtain outside of the US (or if they are obtainable, very expensive). The only way I could add Transferwise as a route for withdrawals was via ACH, and even this requires some special handling, sending in 'statements', letters from Transferwise 'officers', and the like, to prove account ownership. Transferwise will handle ACH payments in but not out, and Vanguard's automated ACH setup rejects ACH connections that are not bi-directional.
• Vanguard will not allow voice verification to be turned on for non-US addresses. No idea why, since there seems to be no technical limitation here.
• Vanguard's two-factor authentication only works with US mobile phone numbers, and cannot handle non-US phone number formats. This means that you cannot use improved authentication.
• Non-resident alien forms such as 1042-S are always the last of the bunch to be published annually. Never late, but always later than most everything else. Perhaps other brokers are the same.
• Vanguard will not allow me a brokerage option, so I can only use mutual funds, no ETFs. I'm in the UK. It might be different for other countries. For me though, this makes Vanguard US useless for taxable investing. The UK has unfavourable tax laws for 'offshore' (to it) funds. Vanguard's US domiciled ETFs skirt these laws, but their mutual funds do not.

There is probably nothing here that should necessarily dissuade you from holding your account after leaving the US then, but it is as well to at least be aware of the potential for some annoyances once you have left.

[niceguy7376]

I have most of my funds in Traditional IRA and some in Roth IRA. I don't mind that the gross proceeds are held as long as it is straightforward to claim the refund.

What refund are we talking here?

[123]

I have most of my funds in Traditional IRA and some in Roth IRA. I don't mind that the gross proceeds are held as long as it is straightforward to claim the refund.

What refund are we talking here?

Under current law and regulation if a foreign national (who is then outside the US) request a distribution from an account held in the US the default action by the custodian would be withhold 30% of the gross proceeds for potential US taxes. That is 30% of the gross proceeds, not 30% of any income or capital gain. The overseas account holder will need to file a US tax return to claim a refund for some or all of that 30%. So LazyNihilist would be filing a US tax return for each year in which he/she receives any distribution from Vanguard overseas in order to claim back the excess withholding. I don't know how fast the IRS processes such returns and based on the US tax return cycle there could easily be an 18 month delay between the time of the excess withholding and the time the excess would be returned to LazyNihilist. Of course depending on the tax situation of the overseas account holder there may be no excess that needs to be returned.

[Wad]

Hi Maple,

Glad to see you're still around. A few questions if that's okay.

1) Do you use a Philippine address for Vanguard or Interactive Brokers? Housing contract?
2) Are you on a SRRV, 13a, or Tourist visa?
3) Have you been able to open a Philippine bank account? I hear it's pretty much a crap shoot with a tourist visa these days.

Thanks,

Wad

Hi saroop.

Welcome to the board with your first post and good luck with your move!

I did this several years ago with an investment account, IRA and Roth IRA at Vanguard. My new tax residence is the Philippines, and I updated this with Vanguard (W-8BEN, and other internal Vanguard account details). Everything continues to have worked out fine with the accounts which are now just investment and Roth. At the time, Vanguard had a list of countries which they were ok with and others which they were not ... so, your situation may vary.

You should consider some tax planning too. Knowledgeable Boglehead forum members will raise valid points about potential estate tax risk and potential inefficient dividend taxation. These will depend on the specifics of your situation (tax domicile, investment holdings, etc.).

[Maple]

Hi Maple,

Glad to see you're still around. A few questions if that's okay ...

Sure, happy to help. Response via PM so not to hijack the original author's thread.

[LazyNihilist]

Vanguard did get back to me with a detailed response.

As a resident of India or New Zealand, you should be able to maintain and
trade within your Vanguard accounts. ...

All fairly positive for you, then. However, as US nonresident alien and a Vanguard client who opened an account while a US resident but now is not, I can attest to the fact that Vanguard's offering for people living outside the US is not seamless with its ordinary operation for US residents.

Here are a few of the frustrations, although none are showstoppers, at least not so far:

• Wiring money out of Vanguard can be problematic. It is difficult to set up a new wire out without a 'medallion signature guarantee', and these are virtually impossible to obtain outside of the US (or if they are obtainable, very expensive). The only way I could add Transferwise as a route for withdrawals was via ACH, and even this requires some special handling, sending in 'statements', letters from Transferwise 'officers', and the like, to prove account ownership. Transferwise will handle ACH payments in but not out, and Vanguard's automated ACH setup rejects ACH connections that are not bi-directional.
• Vanguard will not allow voice verification to be turned on for non-US addresses. No idea why, since there seems to be no technical limitation here.
• Vanguard's two-factor authentication only works with US mobile phone numbers, and cannot handle non-US phone number formats. This means that you cannot use improved authentication.
• Non-resident alien forms such as 1042-S are always the last of the bunch to be published annually. Never late, but always later than most everything else. Perhaps other brokers are the same.
• Vanguard will not allow me a brokerage option, so I can only use mutual funds, no ETFs. I'm in the UK. It might be different for other countries. For me though, this makes Vanguard US useless for taxable investing. The UK has unfavourable tax laws for 'offshore' (to it) funds. Vanguard's US domiciled ETFs skirt these laws, but their mutual funds do not.

There is probably nothing here that should necessarily dissuade you from holding your account after leaving the US then, but it is as well to at least be aware of the potential for some annoyances once you have left.

Thanks for your reply TedSwippet. I have most of my assets in tax advantaged accounts in both Vanguard and Fidelity. I will hold them until I retire (or reach age 60). I read your posts regularly and am aware of the multiple complications for a Non Resident. I plan to stay in US, but if that doesn't work out, the next option I am looking at is to open an Interactive Brokers account and invest in VWRA (Total Stock) and VAGU (Total Bond) through the UK market (LSE).

[harvardbmw]

Related to this topic:
I hold VTSAX and will become a nonresident alien when I leave the US. I've heard that Vanguard will close the accounts of nonresidents. If I somehow manage to keep my account, what are the tax implications? Do I have to file my tax return as a nonresident alien or a resident alien? Note that dividends from the account will be my only US-based income and I don't intend to buy/sell more mutual funds. I would greatly appreciate any comments/suggestions.

Thank you!

[TedSwippet]

Welcome.

I hold VTSAX and will become a nonresident alien when I leave the US. I've heard that Vanguard will close the accounts of nonresidents.

It's by no means certain that they will close it. They might do one of several things, it seems:

• Allow reasonable access, under non-resident alien terms (with a W-8BEN). There may be some restrictions on the type of thing you can trade, and you may have to send paper forms in for some things that could otherwise be done online, but overall the account functions relatively well. Buy and sell, and things like 401ks, IRA rollovers and Roth conversions are still available.
• Limit activity as noted upthread. That is, you can sell existing holdings on your own schedule but not buy any new ones. Over time, that makes the account hard to manage (rebalancing, for example).
• Force you to close your account and move your money out.

Which occurs seems to to depend heavily on which country you move to, its tax treaty status and regulatory framework, and so on. No way of knowing though without revealing this to Vanguard and then asking them directly.

If I somehow manage to keep my account, what are the tax implications?

It depends which country you live in. If it has an income tax treaty with the US, you will pay US tax on dividends at the treaty rate. It's typically 15%, but could be higher, perhaps 25%. A few countries have a 10% rate. If it has no income tax treaty, you will pay 30% in US tax on dividends. Vanguard will take the correct rate automatically through withholding once you've sent them a W-8BEN. It's a flat rate tax, so you cannot recover any of it from the IRS. You might however be able to use it as a credit against local income tax on these dividends.

No US capital gains tax implications. The US does not tax capital gains for nonresident aliens. Watch out though for US estate tax. If you country lacks a US estate tax treaty, your heirs could face 26%-40% of the balance of your holdings above $60,000 should the worst happen. This applies also to any IRA or 401k accounts you hold in the US. The US estate tax treaties with Ireland and South Africa are reportedly deficient, so best not to rely on those.

Do I have to file my tax return as a nonresident alien or a resident alien?

If you're neither a US citizen (or resident) or a green card holder, if you have to file anything it's always a nonresident alien return, so a 1040-NR.

In general though, you should have no need to file one. Provided Vanguard applies the correct US tax withholding on dividends, your US tax liability will exactly match your US tax withholding, and in that case you don't need to send any US tax return. See 1040-NR instructions for more.

If for any reason you do have to file a 1040-NR, perhaps Vanguard overwithheld relative to your treaty rate, you'd only have to declare your US source income on that. You don't tell the IRS anything about your non-US earnings, interest, or anything else financial happening in your (non-US) country of residence on that form.

* Vanguard's two-factor authentication only works with US mobile phone numbers, and cannot handle non-US phone number formats. This means that you cannot use improved authentication.

Finally, an update on this, mentioned in a previous posting. Vanguard have now added the ability to use non-US phone numbers for SMS authentication, prior to making this a requirement for accessing the account (on or around mid-June 2020, if I recall correctly). I have tested it, and it works for UK mobile phone numbers.

[occambogle]

Related to this topic:
I hold VTSAX and will become a nonresident alien when I leave the US. I've heard that Vanguard will close the accounts of nonresidents.

Depending in what vehicle they are held and other factors... presumably it might be advantageous to convert that VTSAX mutual fund into VTI ETF.... at least you would avoid the issue of non-residents and US mutual funds, even if you may still have other issues.

For some reason I overlooked the aspect of you being an NRA and the divident tax implications the the poster above points out.

[harvardbmw]

It depends which country you live in. If it has an income tax treaty with the US, you will pay US tax on dividends at the treaty rate. It's typically 15%, but could be higher, perhaps 25%. A few countries have a 10% rate. If it has no income tax treaty, you will pay 30% in US tax on dividends. Vanguard will take the correct rate automatically through withholding once you've sent them a W-8BEN. It's a flat rate tax, so you cannot recover any of it from the IRS. You might however be able to use it as a credit against local income tax on these dividends.

Thank you very much for the detailed response.

Two possible scenarios:
1. Vanguard agrees to keep my account as an NRA (with a W-8 BEN form) and I can hold on to my mutual funds and pay US taxes on the dividends. I would be fine with that. I guess the only problem is that I wouldn't be allowed to buy more mutual funds as an NRA. Is that right? Is it a good idea to convert to ETF?

2. Vanguard forces me to close my account. In this case I would have to sell my funds, but how do I deal with IRS? It's clear that I have to file as NRA, but Vanguard will report form 1099 to IRS. Wouldn't that lead to inconsistencies in my tax return? For example, there will be no taxes on capital gains as an NRA, but IRS will consider me a resident. Will that raise a red flag to IRS?

[TedSwippet]

1. Vanguard agrees to keep my account as an NRA (with a W-8 BEN form) and I can hold on to my mutual funds and pay US taxes on the dividends. I would be fine with that. I guess the only problem is that I wouldn't be allowed to buy more mutual funds as an NRA. Is that right? Is it a good idea to convert to ETF?

If Vanguard will not allow new purchases, my guess is that this would be new purchases of anything, so either mutual fund or ETF. In my case, Vanguard will let me use mutual funds, but will not let me use ETFs, even in my 401k and IRA accounts (although they have never explained why this is). Given this, it seems like there may not be much to be gained by moving to ETFs.

However ... your situation is probably not the same as mine. I'm in the UK, and unless you will be too, Vanguard may (or may not) do something entirely different, depending on which country you move to, tax treaties, and quite possible just what they feel like doing at the time. No way of knowing without asking them directly, I'm afraid.

2. Vanguard forces me to close my account. In this case I would have to sell my funds, but how do I deal with IRS? It's clear that I have to file as NRA, but Vanguard will report form 1099 to IRS. Wouldn't that lead to inconsistencies in my tax return? For example, there will be no taxes on capital gains as an NRA, but IRS will consider me a resident. Will that raise a red flag to IRS?

For capital gains and dividends in a taxable account, the IRS sends out 1099 forms for US residents, citizens and green card holders. For nonresident aliens, income and tax withholding information is reported on form 1042-S instead, so you should receive that, and not a form 1099. If the IRS receives a 1042-S from a broker, it knows that the taxpayer in question is a nonresident alien.

So if you close your account, or if Vanguard forces closure, after you become a nonresident alien (that is, after you leave the US and have filed a W-8BEN with Vanguard), you should get no 1099's, but 1042-S instead. No IRS red flags, then. If you do get a 1099 though, perhaps with IRS 'backup' withholding because Vanguard didn't have a W-8BEN (you haven't file it yet, they lost it, ...), it's not the end of the world. You just file a 1040-NR and apply the right tax treatment to the income numbers shown on the 1099. The 1040-NR instructions show how to to this.

[harvardbmw]

@TedSwippet Thank you so much!
Given all this, it's probably best to stay with Vanguard until I'm forced out. I can then transfer to another broker that would let me have an account from abroad. Is there any advantage in already opening an account with IB or Schwab while I'm in the US?

[occambogle]

@TedSwippet Thank you so much!
Given all this, it's probably best to stay with Vanguard until I'm forced out. I can then transfer to another broker that would let me have an account from abroad. Is there any advantage in already opening an account with IB or Schwab while I'm in the US?

Well with IB as a U.S. resident you can get the IBKR Lite package with no monthly fee. whereas as a non-resident you need the IBKR Pro package at $10/month (waived for more than $100k). PS - In any case for "international" type people I still think IB is best. So if it were me I'd get IBKR Lite while resident, keep a little in it just to have it open.... then it will be ready in case at some point in future you need to transfer in kind quickly.

[harvardbmw]

Very helpful. Thank you!

[international001]

Withholding >>>

Typically, a foreign person with U.S. income is subject to U.S. taxes on
the U.S. generated income. The default nonresident alien withholding rate
is 30%; however, some foreign persons are eligible for a reduced tax rate.
For nonretirement accounts, this applies to dividends and capital gains
whether or not you reinvests the funds.

Now I'm confused. A non-resident Alien with assets in US is taxed for capital gains or not? (according to the quote he is, according to TedSwippet he is not)

Also, it seems that Fidelity and Vanguard give different answers. Vanguard being more liberal. Shouldn't it be a question of laws?

And if you are in Europe, can you keep your US brokerage at all? Doesn't it go against MIDIF II rules?

[international001]

Finally, an update on this, mentioned in a previous posting. Vanguard have now added the ability to use non-US phone numbers for SMS authentication, prior to making this a requirement for accessing the account (on or around mid-June 2020, if I recall correctly). I have tested it, and it works for UK mobile phone numbers.

I think everything is listed here: https://investor.vanguard.com/security/security-codes
International cell phones work
If you think it may signal some sort of red flag, yo may consider to get an IP phone (non-cell) with an US number (you can be authenticated just by voice). Also, if somebody is going to back you, it's more difficult to do it on a voice line than on an Android phone.

[harvardbmw]

And if you are in Europe, can you keep your US brokerage at all? Doesn't it go against MIDIF II rules?

Yes it's not illegal to hold your US account. You won't be able to trade anymore US funds though. The problem is finding a way to convince Vanguard to keep your account open as an NRA.

[TedSwippet]

Withholding >>>

Typically, a foreign person with U.S. income is subject to U.S. taxes on
the U.S. generated income. The default nonresident alien withholding rate
is 30%; however, some foreign persons are eligible for a reduced tax rate.
For nonretirement accounts, this applies to dividends and capital gains
whether or not you reinvests the funds.

Now I'm confused. A non-resident Alien with assets in US is taxed for capital gains or not? (according to the quote he is, according to TedSwippet he is not)

If Vanguard said this on capital gains, they are wrong. From IRS publication 519:

Capital gains are generally not taxable if you were in the United States for less than 183 days during the year. See Sales or Exchanges of Capital Assets in chapter 4 for more information and exceptions.

Simply owning shares of a US corporation is not an exception.

Also, it seems that Fidelity and Vanguard give different answers. Vanguard being more liberal. Shouldn't it be a question of laws?

As long as they do not break laws or regulations, individual brokers are free to offer accounts as they wish. Some have taken the commercial decision to apply more restrictions to nonresident aliens than required by law, perhaps to the point of simply closing accounts of people who become US nonresidents.

And if you are in Europe, can you keep your US brokerage at all? Doesn't it go against MIDIF II rules?

MiFID II applies to brokers across the EU, not to individuals. Because it does not cover US brokerages, they don't have to comply. Some might comply with it even so, particularly if their organisation has some sort of European presence. Others will not.

[international001]

Finally, an update on this, mentioned in a previous posting. Vanguard have now added the ability to use non-US phone numbers for SMS authentication, prior to making this a requirement for accessing the account (on or around mid-June 2020, if I recall correctly). I have tested it, and it works for UK mobile phone numbers.

I found this summary: https://investor.vanguard.com/security/security-codes
Yes, they accept international phones
If you think this may show a red flag, get an IP phone with an US number and authenticate via a voice call. More difficult to hack than an android phone.

[LazyNihilist]

Withholding >>>

Typically, a foreign person with U.S. income is subject to U.S. taxes on
the U.S. generated income. The default nonresident alien withholding rate
is 30%; however, some foreign persons are eligible for a reduced tax rate.
For nonretirement accounts, this applies to dividends and capital gains
whether or not you reinvests the funds.

Now I'm confused. A non-resident Alien with assets in US is taxed for capital gains or not? (according to the quote he is, according to TedSwippet he is not)

If Vanguard said this on capital gains, they are wrong. From IRS publication 519:

Capital gains are generally not taxable if you were in the United States for less than 183 days during the year. See Sales or Exchanges of Capital Assets in chapter 4 for more information and exceptions.

Simply owning shares of a US corporation is not an exception.

I believe Vanguard probably just gave a boiler plate response. I trust TedSwippet with the IRS publication link.
If you need to keep the Vanguard account, I would recommend emailing Vanguard with a link to this IRS publication for further clarification.

[rproudlock]

I am a non-resident alien, residing and paying tax in the UK. I have an open brokerage account and a Roth IRA with Vanguard. I have traded in the open account and purchased funds in the Roth since leaving the USA.

As regards the Open account. In the UK you should not declare dividends in your foreign income form if they are reinvested. Instead, when the shares are sold, you need to declare the difference in cost at the time of purchase and the proceeds of the sale as capital gains. Amounts should be expressed in £ at whatever the official HMRC exchange rates were at those two time points.

To claim the tax treaty and avoid withholding tax (which Vanguard otherwise automatically apply at 10%), I have been contacting them via the message system. So far they have asked (incorrectly) for a completed form renouncing my permanent resident status in the US (I was a temporary resident paying tax there) then a completed W8-BEN, a copy of my UK passport, and to update my address (which was already up to date - they just got it wrong in their system). Now I have been told I will have to submit a completed Reasonable Explanation Checklist which they will be sending me (when? how?) and complete an online W8 which they haven't given me access to yet.

So, it seems it is all possible for UK tax residents: don't declare re-invested dividends on accounts and you'll have to jump through a few hoops to avoid withholding on Roth accounts.

As a non-resident alien, I also have 401K and a simple IRA and, previously, held an HSA. When cashed, I believe they have to be declared as pension income unless a take out a big lump sum - I'd imagine there would be withholding on that but don't know for sure.

[international001]

As regards the Open account. In the UK you should not declare dividends in your foreign income form if they are reinvested. Instead, when the shares are sold, you need to declare the difference in cost at the time of purchase and the proceeds of the sale as capital gains. Amounts should be expressed in £ at whatever the official HMRC exchange rates were at those two time points.

IS this a UK thing or for all countries?

So you have to pay 15% in US (distribution) but in UK nothing till you sell them (as accumulation)?
When you sell them in UK, can you deduct what you already paid in US?
If you bought multiple lots, when you sell something how do you determine from which lot it belongs?

It seems an accounting nightmare scenario.

[TedSwippet]

Welcome.

I am a non-resident alien, residing and paying tax in the UK. I have an open brokerage account and a Roth IRA with Vanguard. I have traded in the open account and purchased funds in the Roth since leaving the USA.

That's a useful data point. Thanks for stopping by.

As regards the Open account. In the UK you should not declare dividends in your foreign income form if they are reinvested. Instead, when the shares are sold, you need to declare the difference in cost at the time of purchase and the proceeds of the sale as capital gains. Amounts should be expressed in £ at whatever the official HMRC exchange rates were at those two time points.

I find this ... surprising. The UK specifically taxes 'notional' (unreceived) dividends annually where you hold accumulation funds; you then get to subtract these out for CGT on sale. It doesn't seem like 'offshore' (to the UK) funds would get better tax treatment than onshore ones. Generally, they get worse treatment -- Google for 'HMRC reporting funds'. (Is this somehow conflated with 'offshore bonds'?)

To claim the tax treaty and avoid withholding tax (which Vanguard otherwise automatically apply at 10%), I have been contacting them via the message system. So far they have asked (incorrectly) for a completed form renouncing my permanent resident status in the US (I was a temporary resident paying tax there) then a completed W8-BEN, a copy of my UK passport, and to update my address (which was already up to date - they just got it wrong in their system). Now I have been told I will have to submit a completed Reasonable Explanation Checklist which they will be sending me (when? how?) and complete an online W8 which they haven't given me access to yet.

This is Vanguard US, not Vanguard UK, right? It's just that I've mostly come across 'Reasonable Explanation' in connection with UK residents that have FATCA 'US indicia' (the language of a witch-hunt), and who have to prove that they really are not US citizens or US residents. Whatever, it sounds as if Vanguard remains firmly mired in disorder, confusion and on-the-hoof policy-making when it comes to handling NRAs.

As for the W-8BEN specifically, you may be able to locate this in your account already. Try following 'My Accounts -> Tax Center' and look in the right-hand panel 'TAX FORM INFORMATION' for an 'Update your Form W-8'. I see this in my account (although it is not brokerage, so maybe yours is different?). Note that Vanguard makes you fill out a separate W-8BEN for every account you hold with them, even though -- of course! -- all four will be completely identical (because you're the same person, at the same address, and with the same SSN and NI number).

Also, on last try I found their online W-8BEN didn't seem to work properly in Chrome, and I had to use MS Edge to get any sense out of it. Could just be me.

So, it seems it is all possible for UK tax residents: don't declare re-invested dividends on accounts and you'll have to jump through a few hoops to avoid withholding on Roth accounts.

Not sure about the first. For the second, no tax withholding, it should be the case that Vanguard won't withhold tax on Roth withdrawals, but if they do then you should be able to get that back by filing a 1040NR at year end. The rules on tax withholding for IRAs are ... funky. See below for more.

As a non-resident alien, I also have 401K and a simple IRA and, previously, held an HSA. When cashed, I believe they have to be declared as pension income unless a take out a big lump sum - I'd imagine there would be withholding on that but don't know for sure.

Under the US/UK tax treaty, 401k and IRA withdrawals are taxable only to country of residence (UK, in this case), except for "lump sum" distributions, which are taxable only to country of pension (so, US). So far, so clear.

But ... the problem is that "lump sum" is not defined anywhere in the treaty. Some sources consider it to be anything other than regularly scheduled (monthly, say) and equal-value withdrawals, others that it would only be if you withdrew the entire account balance in one go. Cautious 401k and IRA providers have a tendency to withhold tax on any ad-hoc withdrawals, then. Perhaps even from a Roth, because they are terrified of, or more likely simply unable to parse or understand, what passes for IRS "guidance" in this area.

So that's how this is supposed to work. If Vanguard does something different, it'll be up to you to sort it out with the IRS.

[rproudlock]

Clarification
Yes, my account is with Vanguard US. I don't have a Vanguard UK account.

The W8-BEN doesn't seem to be available for my Brokerage/Roth account - all I get are the annual tax forms. Interestingly, I have a UK account with AJ Bell - they have an online w8-BEN form that you should fill in if you want to invest in US stocks. Probably other UK brokers use a similar system.

As regards tax on reinvested dividends, I believe that there may be a difference between income and capital gains. In my case, these stocks accumulate capital gains whereas the link TedSwippet sent relates to income funds. In Canada and the US you pay income tax on dividends but in the UK you don't if they are reinvested. See
HMRC advice https://community.hmrc.gov.uk/forums/cu ... 0d3a7ed2f2

My advice would be to sell stocks/shares occasionally (even if you buy them back immediately after) and declare capital gains as the UK has an annual allowance on capital gains, that means you'll have to pay much less or no capital gains tax in the long run.

Vanguard have sent the reasonable explanation form to my wife (who asked for it a week after me) but I still haven't received one. It's really straightforward so I don't see why it couldn't be emailed to me or available online. They didn't tell her what to do with the form (or the copy of her passport they asked for). Plus, they haven't given any information about filling in the W8.
I'd much rather not pay the withholding up front as compared to claiming it back - that could be protracted plus how/where would they send it. If I say I have a US bank account, they might say I need to pay taxes in the US (as well as UK) then loads more forms.

[TedSwippet]

In Canada and the US you pay income tax on dividends but in the UK you don't if they are reinvested. See
HMRC advice https://community.hmrc.gov.uk/forums/cu ... 0d3a7ed2f2

I don't want to get into a big argument over this, but it seems to me like you are trying to apply 'scrip' dividend tax treatment to 'drip' dividends.

Vanguard's US domiciled ETFs and funds all pay out dividends as cash every so often -- they have to by US law, which is why there is no such thing as a US domiciled 'accumulation' ETF or mutual fund share class -- and you should see this cash as a dividend entry in your account. If you have dividend reinvestment turned on in Vanguard, then this will automatically purchase new shares of the fund. That's 'drip' -- dividend reinvestment plan. You got cash, and bought new (to you, but already existent) shares with it. Automatically done by the broker, but nevertheless a new purchase. And from the document you linked:

Foreign dividends can be classed as either 'scrip' dividends or 'drip' dividends.
Foreign scrip dividends are where NEW shares are created and given to the shareholder instead of a dividend payment.
There {sic} are not taxable and do not get entered on the return. Drip dividends are when EXISTING shares are given.
These are taxable. You would need to check with the investment company what type of dividend it is, unless it is noted on the paperwork.

I'm pretty sure that mutual funds and ETFs cannot issue scrip dividends. I've certainly never heard of one doing so. It seems like only very few companies offer them.

I'd much rather not pay the withholding up front as compared to claiming it back - that could be protracted plus how/where would they send it. If I say I have a US bank account, they might say I need to pay taxes in the US (as well as UK) then loads more forms.

Me too, but sometimes it happens. The process of getting a tax refund out of the IRS is of course protracted and user-hostile, but for once this isn't a special torture reserved exclusively for nonresident aliens. Everybody has to wait until after April 15 and then file a US tax return if they want a US tax refund. The IRS will only issue tax refunds in USD, either as a cheque or ACH payment to a US bank account.

Holding a US bank account isn't any kind of sign that you're still a 'US taxable person', though. I regularly have my (minimal) US tax refunds paid into my US bank -- it's actually a credit union -- and nothing bad happens. It's a 'checking' account, so no interest to declare anywhere either. (Now that I think about it though, I wonder if I could have the IRS send it by ACH to my TransferWise 'borderless' account ... Hmm ...)

As for W-8BEN and 'reasonable explanation' (for what, exactly?!) issues ... all I can suggest is to hound Vanguard on precisely what it is they want from you, where to find forms, and where and how to return them once completed. I would like to say that once these pieces are in place then everything with Vanguard operates smoothly, but unfortunately my own experience with them does not bear this out. Policy changes created out of thin air seem to regularly create unnecessary obstacles.

[international001]

Reading through the wikipedia about scrip dividends:

<quote>
The investor has the right to sell the new scrip shares in the market. However, the investor must still report the cash value of the scrip dividend on his tax return like a normal cash dividend. This differs from a stock dividend in the United States, where the investor does not pay any tax on receipt of the shares and then only capital gains taxes on the stock dividend until the shares are sold.
</quote>

Is it right? From what you are saying is the other way around. I don't have to report the scrip dividend when I get it (I don't sell anything). For a stock dividend in USA, I don't get any shares of anything (??)

How do I scrip dividends are reported to the USA IRS? When you get the stocks? When you sell them?

[TedSwippet]

How do I scrip dividends are reported to the USA IRS? When you get the stocks? When you sell them?

Not relevant to the thread topic, but ... see IRS Pub 550, page 22: https://www.irs.gov/pub/irs-pdf/p550.pdf

The discussion above relates to UK tax treatment for UK residents. If you have further questions on dividend taxes for US resident investors, please create a new topic in the appropriate US-focused board.

[international001]

Fair enough.

For reference, it's here: viewtopic.php?f=10&t=328568

I am confused by pub 550 and a previous post of yours saying US investor cannot use a tax deferral scheme (like a scrip dividend).

[Pacific]

I just want to say thank you to TedSwippet for all that he adds to this board. There are a group of posters, including TedSwippet, Bruce Steiner, Alan S., Garland Whizzer, and several others, who often post about subjects that do not usually interest me, but which I find interesting because of their input.

[international001]

I just want to say thank you to TedSwippet for all that he adds to this board. There are a group of posters, including TedSwippet, Bruce Steiner, Alan S., Garland Whizzer, and several others, who often post about subjects that do not usually interest me, but which I find interesting because of their input.

+1. Really amazing. I don't know where else I would get all the insights that TedSwippet (and others) give.

[rproudlock]

Well Vanguard finally gave me access to the electronic W8-BEN today and I have submitted the completed version. They seem to have put a hold on my Roth IRA (no cash withdrawal) now which I assume will get lifted once they get round to reviewing the form. Since it took them 3 weeks to give me access to the form after submitting proof of UK citizenship and their reasonable explanation form, I am not holding my breath. I reckon, the whole process will take well over two months. At least it's possible and I don't have to transfer my Roth to someone else.

On a related note, I opened a US balance with Transferwise (effectively a checking account in my name) and linked my US account to that. That means
I can transfer up to $100000 at a time and there is no wire or ACH fee. They give you the mid-range Fx rate and charge you a fee of about 0.5%. I tried going through XE and WorldFirst but they couldn't help.

[occambogle]

+1. Really amazing. I don't know where else I would get all the insights that TedSwippet (and others) give.

+2... the knowledge they share with this forum is so beneficial. Thank you.

[international001]

Well Vanguard finally gave me access to the electronic W8-BEN today and I have submitted the completed version. They seem to have put a hold on my Roth IRA (no cash withdrawal) now which I assume will get lifted once they get round to reviewing the form. Since it took them 3 weeks to give me access to the form after submitting proof of UK citizenship and their reasonable explanation form, I am not holding my breath. I reckon, the whole process will take well over two months. At least it's possible and I don't have to transfer my Roth to someone else.

You fancy to make a small withdrawal and let us know what happens?

On a related note, I opened a US balance with Transferwise (effectively a checking account in my name) and linked my US account to that. That means
I can transfer up to $100000 at a time and there is no wire or ACH fee. They give you the mid-range Fx rate and charge you a fee of about 0.5%. I tried going through XE and WorldFirst but they couldn't help.

Did you try IB. $2 for $100k, market rates

[rproudlock]

I have mutual funs that I held in US from 2012 until now but need to sell to pay for a new house. The dividends are automatically reinvested. I lived in the US until 2016 so, during that period, the dividends were taxed there. Now I live in the UK - anyone know how to work out the UK capital gains bearing in mind I was already taxed on the dividends in the US for half that time.

I heard interactive brokers were good for holding your Roth account if non-US resident. It might be a good way to transfer funds. I was having problems with transfer because both my banks allow me to only transfer money to accounts in my name in the US because I have a non-US address. Transferwise allows you to set up a US based 'checking account' in your name. I transfer money to that which avoids the ACH fee that Transferwise was previously charging me.

[TedSwippet]

I have mutual funs that I held in US from 2012 until now but need to sell to pay for a new house. The dividends are automatically reinvested. I lived in the US until 2016 so, during that period, the dividends were taxed there. Now I live in the UK - anyone know how to work out the UK capital gains bearing in mind I was already taxed on the dividends in the US for half that time.

Are these 'mutual funds' listed as UK reporting funds? The list is here:

Approved offshore reporting funds - GOV.UK

If not -- and unless these are actually one of the main US domiciled Vanguard ETFs, I suspect the answer will unfortunately be "not" -- your capital gains are taxed as if income, so you don't get the 10%/20% capital gains tax rates or the £12.3k (2020/21 figure) annual capital gains tax allowance. You'll want to check this very carefully.

Beyond this, working out the gain is going to be the main workload. You add up the total cost (amount paid) for each fund holding, giving you the 'pool cost'. From there, dividing by the number of shares gives you the cost per share. When you sell shares, the gain is the sale proceeds, less the cost per share multiplied by the number of shares sold. Frankly, a PITA for all UK investors. HMRC "help" and examples here:

HS284 Shares and Capital Gains Tax (2018) - GOV.UK

The above is bad enough in and of itself, but you have extra complications because this is all held in the US. To get the cost for each fund holding, you need, for each and every purchase, a) the amount paid in USD, and b) the USD/GBP forex rate at the date of purchase, where 'purchase' here means not just the amounts you bought manually, but also the automatically reinvested (post-tax portion of) dividends. That is potentially a lot of different forex rates. If it changed little over time, you can probably get away with using one or more averages. The USD/GBP rate hasn't exactly been close to constant between 2012 and now, though. And to get the sale proceeds, for each and every fund sale you need c) the amount received in USD, and d) the USD/GBP forex rate at the date of sale.

If you are very, very lucky, so that a) your holdings fall under 'reporting status', and b) your gains (or total sales) are below the annual capital gains tax allowance, and c) your total sales for the year are below four times the annual capital gains tax allowance, you can avoid all of this capital gains tax computation pain. You only need to fill out a UK capital gains tax return if one of these three conditions doesn't apply.

Otherwise, I suspect you will soon have to become very familiar indeed with the ins and outs of spreadsheets. :-(

I heard interactive brokers were good for holding your Roth account if non-US resident. It might be a good way to transfer funds. I was having problems with transfer because both my banks allow me to only transfer money to accounts in my name in the US because I have a non-US address. Transferwise allows you to set up a US based 'checking account' in your name. I transfer money to that which avoids the ACH fee that Transferwise was previously charging me.

My understanding is that Interactive Brokers will only allow US citizens to open IRA accounts.

[CMS_Flash]

Hi saroop and everyone in the thread. Thank you for all the discussions.

I have a simple question though. If Vanguard or Fidelity has so many restrictions to non-residents, why not just roll over the investments to an international broker's, say IBKR's, IRA to avoid all the troubles?

[shadowlaw]

Vanguard have sent the reasonable explanation form to my wife (who asked for it a week after me) but I still haven't received one. It's really straightforward so I don't see why it couldn't be emailed to me or available online.

I'm now in exactly the same boat as you were, and it's been impossible to get this form. On the phone they keep saying I need to file other forms (eg I-407, which doesn't apply to my situation, since I never held a green card). Perhaps a bit of a silly request, but do you happen to have a digital copy of the "reasonable explanation" form lying around that you could share with me? If not no worries, it just might take me another 3 weeks to get Vanguard to send it to me...

[assyadh]

Hi saroop and everyone in the thread. Thank you for all the discussions.

I have a simple question though. If Vanguard or Fidelity has so many restrictions to non-residents, why not just roll over the investments to an international broker's, say IBKR's, IRA to avoid all the troubles?

No US brokers will open an IRA for non residents. One could open a bunch of IRAs before leaving the US just for this case, but most investors are not aware and end up in limbo..

[occambogle]

No US brokers will open an IRA for non residents. One could open a bunch of IRAs before leaving the US just for this case, but most investors are not aware and end up in limbo..

That’s just not correct... IBKR have no issues opening IRAs for non-resident US citizens, without any US address and stating a foreign residency.

[TedSwippet]

No US brokers will open an IRA for non residents. One could open a bunch of IRAs before leaving the US just for this case, but most investors are not aware and end up in limbo..

That’s just not correct... IBKR have no issues opening IRAs for non-resident US citizens, without any US address and stating a foreign residency.

Mostly. A few countries are however not supported:

IRA Account Information | Interactive Brokers LLC

Residents of Australia, Canada, Hong Kong, Japan, Singapore and India may not open Individual Retirement Accounts.

However, from the thread title, the main focus here is nonresident aliens. And IBKR will apparently not open IRAs for non-US persons:

Traders and Investors | Interactive Brokers LLC

IRA accounts are only available for individual US citizens living anywhere and US resident aliens.

[occambogle]

Mostly. A few countries are however not supported:

IRA Account Information | Interactive Brokers LLC

Residents of Australia, Canada, Hong Kong, Japan, Singapore and India may not open Individual Retirement Accounts.

Did not know that, thanks. Why would that be - something to do with treaties?

However, from the thread title, the main focus here is nonresident aliens. And IBKR will apparently not open IRAs for non-US persons:

Traders and Investors | Interactive Brokers LLC

IRA accounts are only available for individual US citizens living anywhere and US resident aliens.

Fair point, I guess I had missed the non-resdient alien, not just non-resident, thrust of the thread... was only commenting on that particular post saying no US broker would open IRA for non-residents [not NRAs specifically]. But I was missing the NRA context so happy to be corrected on that front.