Have a Tax Question? Ask a Tax Expert
Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.
As a non-resident alien you are NOT subject to capital gains tax.
There is a 30% tax on dividends paid, but this is waived if the company is foreign, or they are interest/capital gains related dividends
The tax treaty between where you live and pay tax and the US could also have a lower dividend tax rate
Page 15 of publication 519 deals with this
You can review publication 519 here: http://www.irs.gov/pub/irs-pdf/p519.pdf
Please clarify......"There is a 30% tax on dividends paid, but this is waived if the company is foreign"
If the company that you invested in is listed in the US but is a foreign company you would not pay the 30% tax
So, if it's a British company paying the dividend and you are a non-us resident there is no tax
Please define ' foreign'.....does that mean if I use a company incorporated in Mauritius for my investments dividends are tax free
They are tax free in the US. Now, I do not know about the tax in Mauritius
I can only speak to US Tax
I am being stupid here!!! When you say they are tax free in US.....earlier...... you advise that there is a 30% tax on dividends. Who withholds this amount and how are the IRS paid, at source, or by filing in arrears?
There is a 30% tax on dividends, that is waived if the dividend is from a foreign company, or if the dividend is interest or capital gain related
The broker withholds this amount. You must have a US brokered account to purchase stocks listed in the US.
If you were to buy from London, you could buy only those American companies who choose to be listed on the London Exchange
I planned to use Interactive Brokers (a US Broker) London Office?
That's fine. If they are a US broker they can trade on the US exchange, although their office is in London
Does it make any difference if I trade personally in my own name as an individual or incorporate a company in Mauritius, or even a US LLC say in Delaware, as the LLC would be tax transparent in the US? Some foreign companies do not list in the US.... but have depositary receipts, what happens in this case? I must get this right as you will appreciate!
The same 30% rule holds true for a foreign company
If you are a foreign owned US LLC the same tax would also apply. There's no way around the 30% dividend treatment.
One must be able to "Treaty Shop" ? with a favourable Double Tax Treaty jurisdiction, that offers lower withholding tax on dividends? How about the US DTA with Malta or Luxembourg....I must find the best route...if you can assist you will receive a greater amount professional work from us as we are using my personal investment (in stock portfolio's put together by several US investment newsletter... that we have combined to create an interesting portfolio... that we would manage from Mauritius where we are licenced and sell to our non US worldwide clients. We have over 20 worldwide offices and have been in business since 1975 WWW.OCRA.COM
I'm sorry, I would not have the expertise needed to "treaty shop" to be quite honest
But yes, a tax treaty could lower the dividend tax rate
Who can advise me please? Fees are not an issue.
On this site, we are all independent contractors...I do not personally know the other tax experts on the site. I'm sure there is someone who may have more knowledge of different tax treaties
Your honesty and frankness is deeply appreciated and respected. Sincere thanks for your input. One last question do you know if US residents/Citizens have any restrictions tax wise on investing in an offshore fund of US listed securities as per the fund I am putting together in Mauritius? I am petrified of the US authorities... and recognise that we have stringent KYC to undertake on clients and equally stringent due dilligence,on source of funds and anti-money laundering procedures.
So long as they pay their taxes on any gains they get from the portfolio they should be fine. However, I'm not sure of the legal restrictions on soliciting business from the US
I don't know if a fund would have to register with the US to solicit business from US sourced investors
Noted. Thank you and look forward to discussing other tax difficulties with you in the future. What part of the US are you located in?
I am located in Tennessee
Thank you very much.