Do Non Residents Need to Pay Dividend Tax?

Do Non Residents Need to Pay Dividend Tax?

All of us must meet our tax implications in one way or another, even if we are non-residents in any country. In this case, we shall be looking at how non-citizens can also meet their tax obligation to their host countries. The U.S. government has some guidelines that foreigners must meet as well. However, what should you know about dividend tax as a foreigner? The dividend tax captures the government’s tariffs on corporations that pay out dividends to their shareholders. The government will impose dividend tax in addition to the other regular operating taxes. This type of tax has a close relationship to withholding tax.

As a non-resident, you are under no obligation to remit taxes to the U.S. government in deals with an income from sources out of the United States of America. However, you still must pay taxes that are subject to the revenues from the U.S. Foreigners usually have a fixed rate of 30% applied to dividends.

Dividend Taxes for Nonresidents

The concept of dividend taxes applies to nonresident aliens or NRA at the rate of up to 30% on the dividend your company pays out. These rates may fluctuate and become lower if your country of origin has a treaty with the U.S. You should review the fine print of your home country’s tax treaty with the U.S. with a financial expert. Remember that the U.S. cannot apply taxes on dividends that you earn from other foreign companies as an alien.

How to Know If You’re a Nonresident (for Tax Purposes)

Your tax implications to the U.S government is dependent on the government classifying you as a nonresident or resident alien. There are some guidelines that you will have to qualify for or meet as well. However, you immediately become a resident alien for taxes if you are eligible for a green card.

On the other hand, you have an excellent chance to meet the substantial presence test. One can also register as a nonresident and resident alien in the same year. In this process, you will have to file a dual-status income tax return. However, this is only applicable to the year that you depart from or arrive in the U.S.

The Forms You Will Need to Submit

The Internal Revenue Service or the IRS has the relevant forms to submit your taxes as a nonresident. This means that you are still subject to tax implications as an alien. There are various forms that you must comply with as a nonresident alien.

Some of these forms include form 1040NR-EZ, Form 1040NR, and U.S Income Tax Return for Certain Nonresident Aliens with no dependents. The IRS will impose on you two types of taxes, each having its procedures and rates, the fixed or determinable, annual, or periodic tax rate and the effectively connected income tax rate. However, in this case, we shall look at the former.

Is There Any Good Tax Software for Nonresidents?

The federal government of the U.S has some useful tax software in the market that will help you figure out your tax implications. Some of these software’s include Glacier Tax Prep and State Tax Software. Before you can dive into filling your taxes and making mistakes, you will need some practices or lessons.

So, the best option for you as a new nonresident alien is to opt for the Glacier Tax Prep. You will find the fundamental lessons of filing your federal income tax on forms such as 1040NR-EZ or 1040NR. The best part of it is that it will give you the option to finish your application on SPRINTAX.

What About Capital Gains Tax for Foreigners?

Capital gains are the profits that you make from an asset that you sell. Or, you may also gain a profit from selling other assets like land, shares of your stock, and even your business. The federal government’s taxation on such profits depends on how long you had the investment before selling it off. We have two types of capital gains; these are short-term and long-term capital gains.

The short-term capital gain refers to a sale of assets you have had in your possession for less than a year. On the other hand, a long-term capital gain relates to the assets you sell after holding them for more than a year.

You must pay taxes on such capital gain profits as a foreigner as well. The IRS will conduct an audit and withhold 15% of the total purchase of assets or property.

Final Thoughts

As a foreigner, you may want to consult a financial advisor on matters concerning the dividend tax and capital gains in the U.S. Besides, some of the laws, rates, and rules that they have in place are subject to change.

Remember that as a nonresident, you still have obligations to remit your taxes to the government when you sell your assets in the U.S or have an income with the borders of the U.S.

Gui Hadlich

Hey there, I'm Gui! I was born in Brazil, and I got to travel the world playing tennis. In 2014 I moved to the US to study, and ended up staying here. I've been a student, got married, got a green card, bought a home, and started a business - all without being a citizen. I know how difficult it can be to find answers when you are living in a foreign place, and this is why I started Foreigner Living - to help you with any questions you may have!

Recent Posts