US Tax on Dividends for Non Resident – IRS Non Resident Dividend Tax
Non-Resident Tax on U.S. Dividends: A common question Golding & Golding receives is whether nonresidents who own U.S. investments are subject to U.S. tax on those investments.
As with everything tax related involving the IRS, it depends on a few different factors.
Let’s review the basics of whether nonresidents are taxed on US dividends, how the IRS treats the income, and what you can do if you are out-of-compliance.
U.S. Dividend Tax
U.S. dividends primarily refers to dividends that are generated in the U.S., by a U.S. company.
The rules are different if it is a foreign company generating the dividend, so it is very important to be sure that the company issuing the dividend is actually a U.S. company or not.
U.S. Dividends & U.S. Residents (Green-Card or SPT)
When a person is considered to be a permanent resident, either because they are a legal permanent resident with a “Green card” or otherwise have U.S. tax status because they met the substantial presence test – they are taxed on their worldwide income.
Therefore, even if the green card holder resides outside of United States — the general baseline rule is that all U.S. income (and foreign income) is taxed in accordance with worldwide taxation rules.
U.S. Dividends & Non-Residents
Unlike capital gains in which a foreign person is generally not taxed on U.S. capital gains (subject to real estate gains), dividends are taxed differently.
Rather, the general rule is that nonresidents are taxed by the U.S. in situations in which is a U.S. dividend being generated.
Luckily, there are a few exceptions, and primarily the exception falls within the treaty rules.
To United States has entered into more than 50 bilateral tax treaties. The purpose of these treaties is to reduce and minimize taxation for certain residents and nonresidents — depending on the type of income.
When a person is a nonresident, but is earning U.S. dividends, they may benefit greatly from the treaty rules.
The treaty rules vary depending on which country the treaty was entered into. While all treaties do vary (if even slightly) most treaties reduce the tax on dividends significantly, from a general 30% FDAP withholding rate — all the way down to 15%, 10%, 5%, or even zero.
Out of IRS Tax Compliance?
If you have not properly reported your income to the IRS, or properly reported foreign assets, accounts, or investments, are you are out of U.S. tax compliance. This may result in significant fines and penalties.
Luckily, there are various voluntary disclosure/tax amnesty program is you can use to safely get into compliance.
We can help.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.