Taxing Non Residents for Foreign Sourced Income

From IRS Form W-8BEN: ============================================================ Broker transactions or barter exchanges.

Income from transactions with a broker or a barter exchange is subject to reporting rules and backup withholding unless Form W-8BEN or a substitute form is filed to notify the broker or barter exchange that you are an exempt foreign person. You are an exempt foreign person for a calendar year in which: ? You are a nonresident alien individual or a foreign corporation, partnership, estate, or trust; ? You are an individual who has not been, and does not plan to be, present in the United States for a total of 183 days or more during the calendar year; and ? You are neither engaged, nor plan to be engaged during the year, in a U.S. trade or business that has effectively connected gains from transactions with a broker or barter exchange.

========================================================== You need to file the form to avoid withholding.

As your US broker if they will withhold 30% on the specific stocks you had in mind. Mention both cases: foreign stocks purchased on foreign exchange, and foreign stocks purchased on US exchange. In your email mention that according to IRC 871(i)(1)(D) these stocks should not be subject to withholding.

Be aware that there may be a treaty between your country of residence and the US that will allow withholding at a lower rate. The treaties are at

Section 871 says

(i) Tax not to apply to certain interest and dividends (1) In general No tax shall be imposed under paragraph (1)(A) or (1)(C) of subsection (a) on any amount described in paragraph (2).

(D) Dividends paid by a foreign corporation which are treated under section 861(a)(2)(B) as income from sources within the United States.

The above suggests that stocks in (i) and (ii) are not subject to withholding. Section 861 says

(a) Gross income from sources within United States The following items of gross income shall be treated as income from sources within the United States:

(2) Dividends The amount received as dividends?

(B) from a foreign corporation unless less than 25 percent of the gross income from all sources of such foreign corporation for the 3- year period ending with the close of its taxable year preceding the declaration of such dividends (or for such part of such period as the corporation has been in existence) was effectively connected (or treated as effectively connected other than income described in section 884 (d)(2)) with the conduct of a trade or business within the United States; but only in an amount which bears the same ratio to such dividends as the gross income of the corporation for such period which was effectively connected (or treated as effectively connected other than income described in section 884 (d)(2)) with the conduct of a trade or business within the United States bears to its gross income from all sources; but dividends (other than dividends for which a deduction is allowable under section 245 (b)) from a foreign corporation shall, for purposes of subpart A of part III (relating to foreign tax credit), be treated as income from sources without the United States to the extent (and only to the extent) exceeding the amount which is 100/70th of the amount of the deduction allowable under section 245 in respect of such dividends, or

Doesn't the above apply only to withholding of profits on capital gains? Dividends should always be withheld at source.

You are correct. He said dividends.. I thought gains....