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.


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