The US has a unique taxation structure that taxes its citizens, Green Card holders and residents regardless of what country they live in.
It is, almost illogically, easier to define who is a non – US person backwards. The US has a unique taxation structure that taxes its citizens, Green Card holders and residents regardless of what country they live in. US taxes will apply to the first US Citizens to reside on the moon and they will need to file. A closer to home example is a US Citizen living in France. In addition to having French tax to file and pay, the US citizen would also have US taxes to file.
Types of Residency
Non-US citizens, non- residents and people without green cards are non -US persons. As stated before, if a person is a US citizen, they are always considered a US Person. Their residency has no bearing. Persons who are legal residents of the US have different status depending on what type of residency they hold. If a person is a holder of a US Green Card – they are, for US Tax purposes, treated as if they are a US citizen. So, just like US citizens, they are subject to US tax regardless of residency.
US residents here on work or other temporary visas are, with some exceptions, treated as US persons subject to US tax. Once you leave the US the rules are complex requiring an averaging of days in the US over a 3-year period. For the purposes of this program I will not deal withleaving the US and assume that visa holders are US residents.
A good reference in this area is IRS Publication 519. Students and educators in the US on an F-1 visa are considered as continuing to reside in their home country and are non – resident, despite their presence in the US.
Employees of world organizations, such as the UN or World Bank and employees of other governments, such as embassy workers are not considered resident in the US and are treated as non-US persons.
Dealing only with individuals for the purpose of this program: Non-US persons must complete a form W-8BEN. This document identifies your tax status for the US.
You must provide your:
- home country identification number,
- date of birth, permanent address,
- and, if you have one, US taxpayer identification number.
Part II of the form establishes eligibility for treaty rates if you are a tax resident of a country that has a tax treaty with the US. We will discuss tax treaties in detail in another lesson.
W-8BENs must be redone and resubmitted to any US entity holding your account or generating income to you if you have any change in circumstances – for example if you move – even if you move within the same country.
W-8BENs are good for 3 years from the date of signing.
W-8BENs expire on 12/31 of the third year and must be updated before that date to avoid withholding at higher rates and on additional items of income.
If you have a US taxpayer ID W-8BENs do not expire, however, they must be updated for any change in circumstances.
Disclosure: Interactive Brokers
The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Supporting documentation for any claims and statistical information will be provided upon request.
Any stock, options or futures symbols displayed are for illustrative purposes only and are not intended to portray recommendations.
Disclosure: Tax-Related Circular 230 Notice
The information in this presentation is provided for informational purposes only, and does not constitute tax advice and cannot be used by the recipient or any other taxpayer to avoid penalties under any federal, state, local or other tax statutes or regulations, or to resolve any tax issue.