As I understand it, U.S. sourced interest income is tax free to NRA. But dividends from U.S. companies are taxed. How about "dividend" from bond funds whose distributions are sourced by interest income? Are those distributions taxable to NRA?
TIA
This first statement is not necessarily true.
For a complete answer see pages 15 and 16 of IRS Pub 519. It explains what interest is excluded or taxed and which dividends are taxed or excluded or when certain interest related dividends are tax-exempt.
income is tax free to NRA.
Thank you for the pointer. On p.16, it states that there is no 30% tax on ".... interest-related dividends from sources within the United States that you receive from a mutual fund or other regulated investment company. The mutual fund will designate in writing which dividends are interest-related dividends."
Are closed-end funds traded on stock exchanges considered to be mutual funds or regulated investment company? [On the fund's web site, it states that "...closed-end funds are registered with the SEC pursuant to Form N-2..."]
Assuming the dividends are interested-related, do the bond funds routinely make that designation?
TIA
On 9/18/2010 10:51 AM, NoClue wrote: [snip]
Yes.
That information is on the 1042-S form sent to NRAs (assuming you furnished the fund with the required document establishing you are an NRA).
The fund will be bought through a brokerage firm and it will be in street name; and the broker will be provided with W8(?).
The 1042-S seems to be the equivalent of 1099 for U.S. owners that are sent out after the end of year. My concern is the withholding tax at time of distribution. So, the question is whether the Fund will make that designation at time of distribution to the agent making the distribution. If not, then 30% tax will be withheld. If that is the case, how do the NRA recoup the w/o tax? The broker will reimburse the NRA owner and claim it back from the gov't? Or the NRA has to file a tax return to claim the over withholding?
TIA
On 9/19/2010 11:19 AM, NoClue wrote: [snip]
I just can't remember, but I believe if you file the W8-BEN with your broker that reflects you are an NRA there shouldn't be an issue. The last instruction on the form states that you instruct the broker to forward the form to the withholding agent. That being said, you would have to file a 1040-NR to obtain a refund of any tax withholding.
What is the equivalent form (to 1040-NR) for a foreign corporate owner which does not conduct a trade or business in the U.S. and has the 30% taxes withheld at source?
TIA
Not my area of expertise, but I assume its the 1120-F (US Income Tax Return of A Foreign Corporation).
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