Can someone give some guidance about what types of interest income are subject to US withholding tax for a non resident non citizen? What is the case for each of these:
- interest on a US bank account balance
- interest on a US brokerage account balance
- interest paid from a US Treasury Note or Bill or Bond
- interest paid on a US corporate bond
Assume the holder of the bonds is from a country with no tax treaty with the US.
On interest paid on US corporate bonds I have one accountant saying yes and one accountant saying no. The materials online are unnecessarily technical and complex. There are seemingly large numbers of special cases and very little discussion about common cases like a US corporate bond.
In Publication 515, the IRS seems to say that interest on US corporate bonds is subject to withholding:
"Interest from U.S. sources paid to foreign payees is subject to NRA withholding. When making a payment on an interest bearing obligation, you must withhold on the gross amount of stated interest payable on the interest payment date, even if the payment or a portion of the payment may be a return of capital rather than interest. .... Interest paid by U.S. obligors-general (Income Code 1). With specific exceptions, such as portfolio interest, you must withhold on interest paid or credited on bonds, debentures, notes, open account indebtedness, governmental obligations, certain deferred payment arrangements (as provided in section 483 of the Internal Revenue Code) or other evidences of indebtedness of U.S. obligors. U.S. obligors include the U.S. Government or its agencies or instrumentalities, any U.S. citizen or resident, any U.S. corporation, and any U.S. partnership."
Then later the IRS creates exceptions:
"Portfolio interest. Interest and original issue discount that qualifies as portfolio interest is not subject to NRA withholding. To qualify as portfolio interest, the interest must be otherwise subject to NRA withholding, must be paid on obligations issued after July 18, 1984, and must meet certain other requirements."
One exception that seems to suggest that a foreign person may be exempt when the interest is from a bond is the following:
"Obligations in registered form. Portfolio interest includes interest paid on an obligation that is in registered form, and for which you have received documentation that the beneficial owner of the obligation is not a United States person."
"If the registered obligation is not targeted to foreign markets, you must receive documentation on which you may rely to treat the payee as a foreign person that is the beneficial owner of the interest. The documentation required is a valid Form W-8BEN (a valid Form W-8EXP from an entity that completes the Form W-8EXP for other purposes is also acceptable) or, if allowable, valid documentary evidence. See Documentation, earlier."
The list of exemptions is long and very complex. I just cannot understand when a US corporate bond would or would not be exempted as portfolio interest. Any help is appreciated.