# Tax on USA stocks



## miky348 (Sep 23, 2010)

Hi,

A Canadian citizen residing in UAE like to trade in USA stocks/equities.

My understanding is:
- Must open a Non-USA individual account
- Withholding tax of 30% on dividends
- Zero tax on capital gains
- No additional tax
- There is no tax treaty between USA & UAE (https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z)

Questions:
1. Is my understanding correct?
2. My concern is taxation liability and like to be certain that the only tax is 30% on dividend

Thanks
Miky


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## Bevdeforges (Nov 16, 2007)

I think you're probably OK in your assumptions.

That 30% tax rate is the standard non-resident tax rate on just about any US source income. If your broker or agent withholds the 30% for you, then that's it. No returns to file if they take their cut off the top like that.
Cheers,
Bev


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## JustLurking (Mar 25, 2015)

miky348 said:


> 1. Is my understanding correct? ... 2. My concern is taxation liability and like to be certain that the only tax is 30% on dividend


It's correct as far as it goes. However, there is one further _truly horrible_ US tax trap that potentially awaits you, and that is the US estate tax, which kicks in if you are unwise enough to die while holding US stocks and equities.

For non-resident aliens, the US estate tax kicks in at a mere $60k of holdings, so only just over 1/100th of the exemption allowed for US citizens, and can consume up to 40% of the _balance_ of your 'US situs' assets over that level. Also, there is no unlimited spousal exemption if your spouse is not a US citizen. From the IRS:


> Deceased nonresidents who were not American citizens are subject to U.S. estate taxation with respect to their U.S.-situated assets.
> 
> U.S.-situated assets include American real estate, tangible personal property, and securities of U.S. companies. A nonresident’s stock holdings in American companies are subject to estate taxation even though the nonresident held the certificates abroad or registered the certificates in the name of a nominee.
> ...
> Executors for nonresidents must file an estate tax return, Form 706NA, United States Estate (and Generation-Skipping) Tax Return, Estate of a nonresident not a citizen of the United States, if the fair market value at death of the decedent's U.S.-situated assets exceeds $60,000.


A couple of things are worth commenting on further.

Firstly, as a Canadian citizen you _may_ be able to claim some protection from the US/Canada estate tax treaty. Using a US estate tax treaty may hinge on your ability to claim that you are still _domiciled_ in Canada, even though not resident there. It's a fuzzy area, and if you are going to hold more than $60k of US stock in total you will want to research this _thoroughly_ before proceeding.

And secondly, if you were to hold a non-US domiciled S&P 500 tracker ETF, such as the Ireland-domiciled VUSD from Vanguard EU, you would reduce your US tax withholding to an effective 15% -- this is the US/Ireland tax treaty rate and is paid internally by the ETF, the remaining dividend then being paid to you without any further tax withholding of any kind -- and you also entirely distance yourself from any threat of US estate taxes, since your holding here is a Ireland stock and not a US one.

Failing either of these, you might consider holding US stocks through an intermediate holding company. Somewhat specialist and expensive though, so probably best used only as a last resort.


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## jbr439 (Nov 17, 2013)

I believe if you're a Canadian citizen you get to use the US estate and gift tax exemption, *but* it is prorated based on the value of your US assets against the value of your worldwide assets. 
My advice is to avoid US situated assets if possible.
See: https://www.bdo.ca/BDO/media/AA-Publications/US-Estate-Tax-Issues-for-Canadians.pdf


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## miky348 (Sep 23, 2010)

Thank You for the important feedback.

- Holding will be more than $60k
- My spouse is a USA citizen, would that help in avoiding estate tax?
- To avail USA-Canada tax treaty will be challenging for a non-resident Canadian citizen 
- I own a freezone company in UAE, would you advise trading stocks under freezone vs personal account to avoid the whole estate tax issue?
- Would the freezone company have same tax liability, i.e. 30% on dividend and nothing else?

Thanks


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## JustLurking (Mar 25, 2015)

miky348 said:


> - Holding will be more than $60k ... - My spouse is a USA citizen, would that help in avoiding estate tax?


Yes. You should get the unlimited marital deduction if your spouse is a US citizen. Do note however that this only applies to US assets passing to your spouse. You get no special protection from being married to a US citizen for any parts of your 'US situs' estate that you might gift or bequest to others who are not US persons.

This chart provides a good overview of the mess.



miky348 said:


> - I own a freezone company in UAE, would you advise trading stocks under freezone vs personal account to avoid the whole estate tax issue? ... - Would the freezone company have same tax liability, i.e. 30% on dividend and nothing else?


No idea, sorry. Entirely outside my experience.


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