How do taxes work with US stocks?

Elephant789

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I didn't sell any of the stocks yet but dividends were paid out to me.

I got an SMS from IRAS last week saying that I don't have to file a 2017 tax return. I am a foreigner (No PR) if that makes any difference. Also not American.
 
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BBCWatcher

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In terms of U.S. income taxes, the dividends are ordinarily subject to 30% withholding unless a lower treaty rate applies. Unless you are a tax resident of some jurisdiction that has a lower treaty withholding rate, you should have had 30% withheld at the source (by the broker). If you did not, you need to fix that, quickly. File IRS Form W-8BEN with the broker. You may also need to file IRS Form 1040NR to pay the U.S. income tax on those U.S. stock dividends that you were supposed to pay.

The IRS does not charge capital gains tax if you're not a U.S. person. Thus your future stock sales should be U.S. tax free events.

Your U.S. stocks are subject to U.S. estate tax, along with most other U.S. assets including cash (in any currency) held at a U.S. broker. (Cash held at a U.S. bank or credit union, and directly held U.S. Treasuries, do not count.) When you die, your first US$60,000 of U.S. estate taxable assets are tax free. The executor of your estate is responsible for paying the 40% estate tax on the assets above the $60K exclusion amount, based on the fair market value of those taxable assets on the date you die.

In terms of taxes in Singapore, assuming you hold the stocks personally, individually, in your own name (and not in the name of some corporation, trust, or other entity), the dividends are not subject to Singapore income tax. However, even if they were, Singapore would allow a credit for foreign taxes. The 30% U.S. withholding rate is higher than Singapore's top marginal income tax rate, so you would still owe no Singapore income tax in that event. The capital gains are also not Singapore taxable, with the same ownership/titling caveat.

I am assuming you are not a U.S. person, a more expansive category than "not American," and do not become a U.S. person.
 
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MadDawg

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What if a foreigner (e.g. S'porean) trades US options, futures, futures options etc. in their personal account. How are they taxed in the US/S'pore?
 

BBCWatcher

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What if a foreigner (e.g. S'porean) trades US options, futures, futures options etc. in their personal account. How are they taxed in the US/S'pore?
Generally those securities do not pay interest or dividends, so there would be no individual income tax implications in the U.S. or in Singapore, with the caveats noted below. U.S. estate tax could still apply if the securities are classified as U.S. assets.

As noted below, the U.S. estate tax, if it applies, applies to the fair market value on the day the decedent dies. You're now talking about potentially extra volatile instruments. There's no estate tax relief granted if the investments tank after the decedent's death. However, there is a solution: the executor can transfer the highly depreciated assets to any IRS 501(c)(3) charitable organization(s), e.g. the New York office of Doctors Without Borders. There is no estate tax owed on any assets that are disposed of in that way, and in some cases there might be tax credits for the charitable donation.

U.S. estate tax is not generally withheld, but it is legally owed if owed. The executor has to take care of paying it from the estate. The estate tax is owed within 9 months of the decedent's death, which happens to be the normal gestational term of a human baby. Who ever said Congress and the IRS don't have a sense of humor? ;)

On edit: I see that there's a possible "alternate valuation" in IRC Section 2032, which in certain circumstances allows valuing assets at the T+6 month mark after a decedent's death, or upon disposition of the assets if at or before that time. Refer to IRS Form 706-NA and its instructions for details. Also, to be clear, it depends on whether the assets are classified as U.S. estate taxable assets. For example, if you're trading stock options/futures on the London Stock Exchange that happen to be options on the stocks of U.S. headquartered companies, the options/futures aren't likely to be U.S. estate taxable assets. Finally, if 9 months isn't enough time, the executor can request a filing extension using IRS Form 4768. The IRS doesn't have to grant the extension, but it usually does. The extension is not an extension of the payment deadline.
 
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BBCWatcher

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Your U.S. stocks are subject to U.S. estate tax....
....Wherever those shares are held, I should have said -- that particular sentence could be confusing as I wrote it. If you're holding shares of Apple (AAPL) traded on the NASDAQ in New York, for example, those shares are U.S. estate taxable assets even if they're held via DBS Vickers (for example) or any other broker anywhere. The broker's country only matters for these purposes when considering cash holdings, in any currencies. If the decedent's broker is specifically a U.S. broker then that U.S. broker-held cash is also counted within the decedent's estate for U.S. estate tax purposes. Strangely, cash held by a foreigner at a U.S. bank or U.S. credit union is not counted as part of the foreigner's U.S. taxable estate.

The U.S. Congress writes the tax laws. I'm just passing that information along, as best I understand it. Sometimes it's a little quirky, but that's probably true of every country's tax laws, to one degree or another.

Non-U.S. persons seeking more favorable tax income and estate tax treatment often find the Irish-domiciled ETFs to be attractive, such as Vanguard's Irish-domiciled index ETFs. Ireland (and Irish-domiciled funds) enjoy a preferential 15% dividend withholding rate, and those ETFs are not counted toward U.S. assets for U.S. estate tax purposes. You don't have as many options, the trading costs and management fees are usually slightly higher, and there's somewhat less liquidity. The U.S. financial markets really are quite lovely in all those dimensions. However, if you're concerned about tax implications, that's one solution.

At the same time, those non-U.S. ETFs are inappropriate for U.S. persons. U.S. persons are much better off sticking to U.S. domiciled investments.

There are several other markets with tax implications for Singapore resident investors. I'm not familiar with all the tax implications of, say, shares of Fiat traded in Milan (just to pick an example), but there probably are some implications.
 
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BBCWatcher

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no US tax required as long as you are foreigner and not holding green card
No, that's incorrect in response to the original poster's question about shares in U.S. companies -- Apple, Alphabet, General Electric, Starbucks, Caterpillar, AT&T, etc., etc. (1) Non-U.S. persons owe U.S. personal income tax on the dividends (on a withholding basis when paid, at a 30% tax rate for residents of most places in the world, including non-U.S. persons residing in Singapore); and (2) U.S. estate taxes are owed on all U.S. estate taxable assets above the US$60,000 exclusion. The estate tax is due within 9 months of the stockholder's death. The estate tax return is IRS Form 706-NA.

For the record, a foreigner legally married to a U.S. person -- same or opposite sex -- can choose, with his/her spouse's agreement and cooperation, to file a joint U.S. tax return with his/her U.S. spouse. That's what's called a "Section 6013" election. Whereupon the foreigner's dividend tax rate falls to 23.8% or lower. Any excess withholding is recoverable through the joint U.S. tax filing. However, the trade-off is that the foreigner becomes subject to U.S. capital gains tax, and the foreigner's other income becomes U.S. taxable (although not necessarily taxed). Except...there's a "trick." A married foreigner can make that Section 6013 election once per lifetime and later revoke it, permanently, once per lifetime. So the "trick" is to make the election, enjoy the lower dividend tax rate, then revoke the election just before making any substantial sales of appreciated assets. Moreover, the U.S. spouse has an annual gift limit of $149,000 (2017 amount, adjusted annually for inflation) to his/her foreign spouse, so the U.S. spouse can effectively shield a substantial amount of savings from future U.S. capital gains tax. The whole reason for the $149,000 limit is to clamp down on this loophole to some degree, but US$149K/year still allows some legal game playing.

If you're trying to execute that "trick," please research it carefully. It's a little bit "sophisticated," but apparently it works for those who can manage it. I'm not necessarily recommending that "trick," although sometimes joint filing makes sense for other reasons.

Imagine, for example, that you're a foreigner married to a U.S. person, and you're working in Singapore for a startup company -- let's call it "Footbook" -- that's about to go IPO on the New York Stock Exchange. You're going to receive 5% of the shares in the company, and Footbook is expected to IPO with a total market capitalization of US$10 billion. So, overnight, you're going to receive shares worth US$500 million. Not bad! The shares are also going to pay a dividend of 2%, so that's $10 million per year. (This is a little bit of a strange startup, but bear with me -- it's just an example.) Given these sums you're going to hire a tax advisor, I'm sure. But one thing the tax advisor might recommend is that you make a Section 6013 election and file a joint return with your (much poorer!) legal American spouse, same or opposite sex. That'll save the foreigner roughly $700,000 per year in dividend taxes -- not bad again. (The U.S. income tax on the grant of the stock is unavoidable, but the joint filing very modestly reduces the tax rate on that initial grant.) Then, just prior to unloading some or most of those shares, the foreign spouse revokes the Section 6013 election. I think that works to avoid capital gains tax on appreciated Footbook shares! (Obviously that's something to triple check. I might be wrong.) Pretty great deal, right? And that hypothetical foreign spouse can still (in most cases) collect U.S. Social Security spousal benefits if his/her American spouse qualifies for his/her own retirement benefits, so that's just icing on the cake.

Marry an American, basically, if you're in that lucky position. Either gender will do. ;)
 
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epwy1992

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singapore has tax treaty with the US?

hi, recently I heard from a friend that US has a tax treaty with Singapore, such that Singaporeans do not have to pay US tax for the dividends they received from US shares? is that correct?
 

BBCWatcher

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hi, recently I heard from a friend that US has a tax treaty with Singapore....
And where would that tax treaty be? The U.S. Internal Revenue Service doesn't know about it, and they're the tax agency.

Is your friend's surname Madoff? Or Trump? :D

....such that Singaporeans do not have to pay US tax for the dividends they received from US shares? is that correct?
No, not correct.

Residents of Singapore who are not U.S. persons are subject to two U.S. taxes on U.S. listed/traded shares (among other U.S. assets):

(a) U.S. income tax on the dividends, on a withholding basis, and at a 30% flat rate;

(b) U.S. estate tax when the owner of the shares dies, on the value of the U.S. taxable estate above the US$60,000 exemption, at a 40% flat rate.

U.S. persons and residents of some other countries are subject to different tax rules. Non-U.S. assets held by non-U.S. persons are not subject to U.S. tax.
 
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turtle2018

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Are the following subject to US estate duties?
(1) S&P500 ETF listed in US (SPY)?
(2) S&P500 ETF listed in SGX (S27)?
 

henrylbh

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I didn't sell any of the stocks yet but dividends were paid out to me.

I got an SMS from IRAS last week saying that I don't have to file a 2017 tax return. I am a foreigner (No PR) if that makes any difference. Also not American.

You are a foreigner. You not PR. You are not American. How would IRAS knows your phone number to sms you?
 

BBCWatcher

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Are the following subject to US estate duties?
(1) S&P500 ETF listed in US (SPY)?
I believe so, yes.

(2) S&P500 ETF listed in SGX (S27)?
Assuming the decedent was not a U.S. person, no.

There's no free lunch, though. The SGX listed alternative has higher costs and less liquidity.
 

BBCWatcher

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If I buy US stocks that do not pay dividends (see link) using IB, is it true that I dun have to concern myself with the 30% withholding tax? There will be no tax on capital gains when I sell? What about the Singapore side?
I'll answer your questions assuming three conditions: (a) you are not a U.S. person, (b) you are and remain a resident of Singapore (and not a tax resident of any other jurisdiction), (c) you are an individual investor who is not a professional trader (not a "day trader").

30% of zero is zero, so you won't have any dividend tax withheld from zero dividends. Stocks that do not currently pay dividends are often described as "growth stocks," and there are even some "growth stock" funds available, such as VTCLX. (VTCLX contains some stocks that pay modest dividends, so it's not a zero dividend fund. That's quite hard to do, even if you're selecting individual stocks, since companies can announce special dividends or first-time/recurring dividends. But it's an example of a relatively low dividend fund.) Whether the "growth stocks" actually grow or not is a separate question. You should still file IRS Form W-8BEN with your broker, just in case.

There is no U.S. capital gains tax for you. However, caution: if you were ever to become a U.S. person, you would owe U.S. capital gains tax when shares are sold, and the cost basis is keyed to your original purchase price(s). The cost basis is NOT set to the market value on the date you become/became a U.S. person. It's rather common for individuals to sell most or all of their assets just before (strictly before) becoming a U.S. person, to reset the cost basis, then (carefully, avoiding "wash rules") reinvest those funds in U.S.-based investments.

The U.S. estate tax applies to U.S. listed/traded stocks, funds, and some other U.S. situated assets. Upon your demise, your dead body (i.e. your estate) would owe/must pay U.S. estate tax on U.S. estate taxable holdings that exceed your exemption. The exemption is US$60,000, and the estate tax rate is 40%. The estate tax is due within 9 months of your date of death.

There is no tax owed in Singapore.

Tax rules and rates can change, in any country.
 
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cheongmanz

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How about sinkie BBFA who buy US stocks? Also subject to below taxes? Is there currency exchange rate applying as well?

- U.S. income tax on the dividends, on a withholding basis, and at a 30% flat rate
- U.S. estate tax when the owner of the shares dies, on the value of the U.S. taxable estate above the US$60,000 exemption, at a 40% flat rate
 

BBCWatcher

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How about sinkie BBFA who buy US stocks?
"Bui bui forever alone" (BBFA) is not a term that appears in any tax code. :D So, no different in tax treatment based on that status.

U.S. persons are subject to tax rules that vary depending on marital status, with legal same and opposite sex spouses treated equally (since ~2013) but married versus unmarried taxpayers treated differently.

Is there currency exchange rate applying as well?
U.S. taxes, if applicable, are always denominated and calculated in U.S. dollars. (I can elaborate on that if you're a U.S. person and trying to calculate the capital gain for a foreign currency denominated asset. Short answer: you use the historic exchange rate applied to the cost basis, and the more recent exchange rate and apply it separately to the sale price, then calculate the gain/loss between those two U.S. dollar numbers. You don't take the foreign currency gain/loss, the delta, then convert the gain to U.S. dollars. Which would be nicer, but it's not allowed.) Singapore taxes, if applicable, in Singapore dollars.
 

artemov

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I'll answer your questions assuming three conditions: (a) you are not a U.S. person, (b) you are and remain a resident of Singapore (and not a tax resident of any other jurisdiction), (c) you are an individual investor who is not a professional trader (not a "day trader").

Yes, yes and yes!

You should still file IRS Form W-8BEN with your broker, just in case.

Erm can you elaborate on this a bit more? When should I file W-8BEN? I should do it even if all my US stocks have no dividends (I'm not talking about "growth stocks" funds like VTCLX)? I vaguely remember something about W-8BEN when signing up for an IB account.

The U.S. estate tax applies to U.S. listed/traded stocks, funds, and some other U.S. situated assets. Upon your demise, your dead body (i.e. your estate) would owe/must pay U.S. estate tax on U.S. estate taxable holdings that exceed your exemption. The exemption is US$60,000, and the estate tax rate is 40%. The estate tax is due within 9 months of your date of death.

There is no tax owed in Singapore.

Tax rules and rates can change, in any country.
Yes I am aware of all of the above :)

Thanks BBCW. I'm surprised you know what is BBFA!
 
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