# Capital gains or income taxes levied on foreign nationals



## DAfshar (Mar 11, 2008)

Are foreign nationals not residing in the USA ( in this case, a Japanese national ) subject to capital gains or income taxes sourced in the USA when investing in the USA?

I've posed this question and have gotten both yes and no answers. I'm curious if anyone has any experience with this issue. I'm an American residing in Japan and know the tax consequences if I invest anywhere in the world. However, I have heard that the USA does not tax foreign investors in an effort to promote FDI.

 True or false? 


D


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## synthia (Apr 18, 2007)

I thought this belonged in the American section. 

I looked at the IRS website, and in a discussion about student non-resident aliens, it said that non-resident aliens were not subject to taxes on capital gains on US investments because they have not changed their tax home.

That means the income would be subject to Japanese taxes, but for some reason I don't think capital gains are taxable in Japan? Or was that dividends and interest?

Japan has enough American residents that there should be an IRS office there. You could ask.


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## DAfshar (Mar 11, 2008)

*Thanks.*

Thanks for the response. Actually, I sent the IRS an email but I don't anticipate an answer for some time. I'm curious which is more tax advantageous, an American expat living in Japan subject to double taxation or a Japanese national investing in the USA. Finding the answer to this is my mission for the coming weeks.

Thanks again for the response.


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## biswell (Mar 11, 2008)

*UK buyers of US property*

I am a UK resident looking to buy in Florida

I am concerned that I will be taxed on rental income and also capital gains when I sell around 5 years later.

Can anyone please advise me how taxation can be minimised ?

regards

biswell


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## Bevdeforges (Nov 16, 2007)

If you're interested, take a look at Publication 519 on the IRS website. Basically, all US source income is taxable, however there are certain thresholds and it may depend on whether or not the foreigner is "conducting a business" in the US or not. (In other words, the extent of their investment.) There are also tax withholding requirements for non-resident aliens when it comes to certain types of investment income.
Cheers,
Bev


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## biswell (Mar 11, 2008)

Bevdeforges said:


> If you're interested, take a look at Publication 519 on the IRS website. Basically, all US source income is taxable, however there are certain thresholds and it may depend on whether or not the foreigner is "conducting a business" in the US or not. (In other words, the extent of their investment.) There are also tax withholding requirements for non-resident aliens when it comes to certain types of investment income.
> Cheers,
> Bev


Thanks

I read in a previous post that as a foreign non-resident that the taxes appertaining to your country of origin apply

Is this so ?

In particular capital gains tax


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## Bevdeforges (Nov 16, 2007)

biswell said:


> I am a UK resident looking to buy in Florida
> 
> I am concerned that I will be taxed on rental income and also capital gains when I sell around 5 years later.
> 
> Can anyone please advise me how taxation can be minimised ?


Hi Biswell, and welcome to the forum.

Yes, you will be taxed on rental income and capital gains when you sell. However, be sure and talk to competent tax advisors (I highly recommend finding an "enrolled agent" - much cheaper than either an accountant or a tax attorney and you should be able to find an EA in the UK). 

You're entitled to deduct all current operating expenses from your rental income - including depreciation (and generally you can use accelerated depreciation methods).

For capital gains, your accelerated depreciation will complicate the situation a bit, but you also get some allowances for any improvements you put into the property - which can improve your sales price. 
Cheers,
Bev


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## apot (Mar 12, 2008)

*What is "enrolled agent"?*

Hi Bev, this sounds an important info, would you please explain what is "enrolled agent" and how to find one? Thanks.


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## Bevdeforges (Nov 16, 2007)

An enrolled agent is someone certified by the IRS to prepare tax returns and represent clients before the IRS (if problems develop). I'm away from home at the moment, but if you google "enrolled agent" you should be able to find the professional association site which has a list of enrolled agents by location. (And yes, there are enrolled agents in Europe - and probably in other areas around the world.)
Cheers,
Bev


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## synthia (Apr 18, 2007)

DAfshar - Why are you subject to double taxation? Will Japan tax your capital gains in the US? I thought that if you were a resident of another country you not only got the $80,000 exemption for earned income, but could then offset any taxes you did owe with the corresponding taxes paid to the country of residence.


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## DAfshar (Mar 11, 2008)

Everything you mentioned is true. Yet, it still boils down to paying taxes in 2 countries... being taxed on citizenship as opposed to being taxed on residency. Since originally posting this, I have gained some 3rd party advice that has primarily answered my questions but I wanted to thank you for rendering an opinion when many tend to just read and ignore.

Thanks.


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## Bevdeforges (Nov 16, 2007)

The issue of being taxed on citizenship instead of residency is a long-standing and very annoying issue. Many Americans don't realize they still have to file US taxes while they are living abroad - even if they have no economic ties to the US any more.

Normally the IRS won't bother you if owe no taxes, but the embassies do try to encourage long-time expats to "get legal" by filing the last three years of returns and then "go, and sin no more." <g>

The US is one of the very few countries in the world that taxes based on citizenship.
Cheers,
Bev


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## synthia (Apr 18, 2007)

Canadians are required to file, even though they don't owe taxes on foreign earned income. They are even less likely to realize it, and can end up owing a lot of money if they return to Canada after a long time away. There is an annual fine for not filing, and interest is charged on the amount of the fine.


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