Tuesday, February 9, 2016

9 US Tax Rules for Nonresidents Filing Form 1040NR for US source income.

  • Nonresidents pay not capital gains taxes on the purchase and sale of US publicly traded stocks.
  • Nonresidents (absent a treaty provision with their home country that reduces the rate) must pay 30% interest on interest income (other than from US banks, Treasury Bonds and the Portfolio interest exception mentioned below) paid from the US.
  • Nonresidents (absent a treaty provision that reduces the tax) must pay a 30% tax on US source dividends.
  • There are no restrictions on nonresidents owning US real estate, corporations and businesses.
  • If a nonresident has an operating business in the US operating as a partnership, sole proprietorship or through an LLC, they pay the same income tax rate on that income as a tax resident of the US,
  • Nonresidents pay the same income tax rates as tax residents on rental income from  US  real estate (if they make the proper election on their tax return).  The profit from the sale of US real estate is taxed at the same reduced capital gain tax rate as paid by a US tax resident.
  • Nonresidents making loans to US business can avoid paying any tax on the interest they receive from the US borrower by structuring the loan and its related documents to comply with the Portfolio Interest rules.
  • A business operated by a nonresident can be held to have a US tax situs and be required to file US tax returns for keeping inventory in the US, or even having an agent represent it in the US.
  • In most countries in the world if a nonresident must pay US income taxes on its US source income, those taxes can be claimed as a credit against any tax in their home country on that income.
If you need help as a nonresident planning for your US activities or possible US sourced income including filing all required tax returns please email us at ddnelson@gmail.com.   Thank You. Don D. Nelson, Tax Attorney at Law.  All conversations and communications with us are protected by attorney client privilege.

Monday, February 1, 2016

Nonresidents can Earn Interest Tax Free When Loaning Money to US Individuals or Businesses

Normally, except for interest paid on savings accounts and Treasury Bills, interest paid on loans from US nonresidents to US residents is subject to a 30 percent tax. That tax must be withheld from the interest payments to the nonresident lender. This rules applies to individual borrowers and US business borrowers.

A gigantic exception to the rule is the portfolio interest exception. Loans that comply with the IRS portfolo interest loan requirements are not subject to US income  tax or withholding. Those loans are also not US situs assets and therefore exempt from the US estate tax which applies to US situs assets held by deceased nonresidents. Loans balances outside of this exception are most often US situs assets and subject to the up to 39% US estate tax if the value of all assets located in the US exceeds $60,000 US dollars.

Whats  is require  of a nonresident to obtain this tax free benefit for loans made to US businesses and persons?

  • The loan document must comply with the IRS requirements which is relatively simple.
  • The loan document must be registered as defined in IRC
If you as a nonresident want to structure your next loan to a US taxpayer so the interest will be tax free contact us at ddnelson@gmail.com.