If you're a non-U.S. investor interested in buying U.S. stocks, you'll need an Individual Taxpayer Identification Number (ITIN) to comply with U.S. tax laws. In this blog, we'll explore the tax implications for non-U.S. investors with ITINs investing in U.S. stocks.
Firstly, it's important to note that the U.S. imposes a tax on capital gains earned by foreign investors on U.S. stocks. This tax is commonly known as the Foreign Investment in Real Property Tax Act (FIRPTA) tax. FIRPTA tax is imposed on the gross sale price of the stock sold, and it's the responsibility of the buyer to withhold the tax and remit it to the IRS.
Non-U.S. investors can avoid FIRPTA tax by complying with the provisions of the U.S. tax treaty with their home country. However, to claim the benefits of the treaty, non-U.S. investors must have an ITIN. Non-U.S. investors without an ITIN must pay the full FIRPTA tax, which can be a substantial amount.
Once non-U.S. investors have obtained an ITIN, they can file a U.S. tax return to claim their benefits under the U.S. tax treaty. This can help reduce the amount of taxes owed on U.S. stocks.
Non-U.S. investors with ITINs must also be aware of U.S. tax laws regarding dividends earned from U.S. stocks. Dividends paid to non-U.S. investors are subject to a withholding tax of up to 30%. However, this tax rate can be reduced or eliminated by claiming benefits under the U.S. tax treaty.
To claim benefits under the U.S. tax treaty, non-U.S. investors with ITINs must complete and file Form W-8BEN with their U.S. broker. This form certifies that the non-U.S. investor is a resident of a country that has a tax treaty with the U.S.
In conclusion, obtaining an ITIN is essential for non-U.S. investors interested in buying U.S. stocks. With an ITIN, non-U.S. investors can avoid paying the full FIRPTA tax and claim benefits under the U.S. tax treaty. However, it's important to comply with U.S. tax laws and file the necessary forms to ensure compliance and reduce taxes owed on U.S. stocks.