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I am a US citizen purchasing stock in a Netherlands based company.

What tax implications would I...
I am a US citizen purchasing stock in a Netherlands based company. What tax implications would I expect for annual dividends and when I sell the stock and realize my gains.

What taxes would the Netherlands gov't retain?
What taxes would I pay in the U.S.
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Answered in 5 minutes by:
9/27/2013
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,682
Experience: Taxes, Immigration, Labor Relations
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Lev :

Hi and welcome to our site!
As you are US citizen - you are required to report all your worldwide income on the US tax return - so regardless if you own shares of the US corporation or shares of corporation based in Netherlands - there will be similar reporting - you will report dividends and if shares are sold - capital gains (or losses).
If the same income is taxable abroad and in the US - you may claim a credit for taxes paid abroad - so the same income would not be taxed twice. Use the form 1116 -http://www.irs.gov/pub/irs-pdf/f1116.pdf please find instructions here - http://www.irs.gov/pub/irs-pdf/f1116.pdf
The credit is limited by the US tax liability on the same income - the form 1116 is used to calculate the amount of credit. Means - if tax liability abroad is higher - there will not be US taxes on that income, but if tax liability abroad is lower - in the US you will pay the difference after the credit will be applied.

Lev :

Please be aware that there is a tax treaty in effect between the US and Netherlands.
Specifically for dividends - see page 34 - http://www.irs.gov/pub/irs-trty/nether.pdf


1. Dividends paid by a company which is a resident of one of the States to a resident of the other State may be taxed in that other State.
2. However, such dividends may also be taxed in the State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other State, the tax so charged shall not exceed:
a) 5 percent of the gross amount of the dividends if the beneficial owner is a company which holds directly at least 10 percent of the voting power of the company paying the dividends;
b) 15 percent of the gross amount of the dividends in all other cases.

Lev :

So - if you do not have a significant ownership in the Netherlands based corporation and you are not a resident of Netherlands - your dividends are not taxable in Netherlands - and are only taxable in the US based on your citizenship and residency.

Customer:

Thank you. So if I own less than 10 percent of the dutch company, the dutch government would retain 15 percent of my dividends. Also 15 percent of the gains after the stock is sold. Am I correct?

Lev :

A similar provision is related to the capital gain (as long as such gain is not related to the real property) - see pages 36-37 .

Customer:

I report dividends and gains as taxable income on my annual return and apply for a foreign tax credit.

Lev :

Yes - 15% tax would be applied - but they will be credited on your US tax return - thus - there will not be double taxation.

Customer:

thank you. this answers my question. Do you know if there is any benefit of forming an US based LLC to purchase the stocks and manage dividends and gains?

Lev :

For the capital gain - see page 38 -


7. Gains from the alienation of any property other than property referred to in paragraphs 1 through 5 shall be taxable only in the State of which the alienator is a resident.
So - unless specifically mentioned - it is not taxed in Netherlands - only in the US.

Lev :

Do you know if there is any benefit of forming an US based LLC to purchase the stocks and manage dividends and gains?
From tax prospective - a single member LLC is disregarded entity - means it is ignored when income taxes are calculated and all income is treated as received by the owner. So - there is no difference.
There might be other benefits - because the LLC is a separate legal entity - it provides some level of legal protection. You may sell the LLC without selling assets owned by the LLC - etc.
So there might be some benefits depending on your circumstances - but generally - there is NO tax saving just because you would have an LLC.

Customer:

So if i'm taxed 15 percent by the U.S. for dividends, and 15 percent by the Dutch. In the end I only pay 15 percent. Am I correct?

Lev :

Yes - that is correct - as long as you do not have large dividends and do not have AMT complications.

Customer:

thank you.

Lev :

You are welcome.

Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,682
Experience: Taxes, Immigration, Labor Relations
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