W-8BEN
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W-8BEN
Hi!
I'm a UAE resident holding British and Bulgarian passports.
I want to open a broker account and invest in diversified ETFs, including US stocks.
What address should I mention on the W-8BEN form, and how will that protect me from capital gains tax and or dividends taxation?
Newbie here, so all advice is welcome!
I'm a UAE resident holding British and Bulgarian passports.
I want to open a broker account and invest in diversified ETFs, including US stocks.
What address should I mention on the W-8BEN form, and how will that protect me from capital gains tax and or dividends taxation?
Newbie here, so all advice is welcome!
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- Location: UK
Re: W-8BEN
Welcome.
Now, the UAE has no US tax treaties. This means that you will want to avoid US domiciled ETFs, and instead use equivalent Ireland domicile ETFs. That way you can reduce your US tax drag on dividends from 30% on everything down to 15%, and as low as 0% where an ETF holds no US stocks at all. And at the same time, reduce or eliminate any risk of confiscatory US estate tax, 26-40% of everything you hold in the US above just $60,000.
For direct US stock holdings, you will lose 30% of the dividends to US tax. You also risk US estate tax if you hold US stocks, cash, and (perhaps) US domiciled ETFs that total above $60,000 in aggregate.
You can find full details on all of this in the following wiki section of the wiki:
Outline of non-US domiciles : Tax issues - Bogleheads
From the W-8BEN instructions:merryweather wrote: ↑Tue Mar 21, 2023 9:40 am What address should I mention on the W-8BEN form, and how will that protect me from capital gains tax and or dividends taxation?
So assuming you are not a tax-resident of either the UK or Bulgaria, you would need to use your address in the UAE.Line 3. Your permanent residence address is the address in the country where you claim to be a resident for purposes of that country’s income tax. If you are completing Form W-8BEN to claim a reduced rate of withholding under an income tax treaty, you must determine your residency in the manner required by the treaty. Do not show the address of a financial institution, a post office box, or an address used solely for mailing purposes. If you do not have a tax residence in any country, your permanent residence is where you normally reside.
Now, the UAE has no US tax treaties. This means that you will want to avoid US domiciled ETFs, and instead use equivalent Ireland domicile ETFs. That way you can reduce your US tax drag on dividends from 30% on everything down to 15%, and as low as 0% where an ETF holds no US stocks at all. And at the same time, reduce or eliminate any risk of confiscatory US estate tax, 26-40% of everything you hold in the US above just $60,000.
For direct US stock holdings, you will lose 30% of the dividends to US tax. You also risk US estate tax if you hold US stocks, cash, and (perhaps) US domiciled ETFs that total above $60,000 in aggregate.
You can find full details on all of this in the following wiki section of the wiki:
Outline of non-US domiciles : Tax issues - Bogleheads
Re: W-8BEN
Hey Ted. Sorry to hijack the thread, but on the 40% estate tax...
If I held stock and then sold it in 10 years from now, I'm presuming the estate tax would no longer be relevant?
It's just a risk if you pass away whilst holding it, right?
If I held stock and then sold it in 10 years from now, I'm presuming the estate tax would no longer be relevant?
It's just a risk if you pass away whilst holding it, right?
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Re: W-8BEN
Yes. All you have to do is plan your date and time of death with the utmost precision. You can do that, right?! :-)
Note that this is an uncompensated risk; that is, it's an extra risk for zero extra reward. You can readily avoid it by simply avoiding any and all direct contact with the US financial system. Use non-US domiciled funds and ETFs, or (if necessary) non-US intermediate holding companies, and never hold any more than just $60k in direct 'US situs' assets.
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Re: W-8BEN
I wonder how strong is the recommendation not to hold US assets directly for the residents of countries that have a good estate treaty with the US. In other words, how much of a hassle is it for the family to get the assets released.TedSwippet wrote: ↑Mon Oct 02, 2023 2:19 pmYes. All you have to do is plan your date and time of death with the utmost precision. You can do that, right?!
Note that this is an uncompensated risk; that is, it's an extra risk for zero extra reward. You can readily avoid it by simply avoiding any and all direct contact with the US financial system. Use non-US domiciled funds and ETFs, or (if necessary) non-US intermediate holding companies, and never hold any more than just $60k in direct 'US situs' assets.
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Re: W-8BEN
It can be a hassle. The broker will not release assets to the estate until they receive a 'transfer certificate' from the IRS. To get that, the estate has to file a non-resident form 706-NA (in this case, claiming treaty benefits). Expect at least six to nine months of IRS delay in the process. From UK-based Lester Aldridge:id_afstand wrote: ↑Tue Oct 03, 2023 2:17 am I wonder how strong is the recommendation not to hold US assets directly for the residents of countries that have a good estate treaty with the US. In other words, how much of a hassle is it for the family to get the assets released.
That is for US brokers, and arguably also for non-US brokers. It is an open question as to whether a non-US broker in a US estate tax treaty country, and with no other connections to the US, would (have to, or choose to) follow this process stringently.How long does it take to obtain a transfer clearance certificate from the IRS?
This is, unfortunately, a long process, historically taking between 6–9 months. However, we are currently experiencing processing times of between 15 – 24 months, due to the delays caused by the pandemic. Sometimes the timescale can be much longer if the estate is chosen for audit.
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Re: W-8BEN
Thank you, TedSwipped, for your answer. So saving 20 basis points per year using US ETFs may be a case of penny wise and pound fullish.TedSwippet wrote: ↑Tue Oct 03, 2023 3:09 amIt can be a hassle. The broker will not release assets to the estate until they receive a 'transfer certificate' from the IRS. To get that, the estate has to file a non-resident form 706-NA (in this case, claiming treaty benefits). Expect at least six to nine months of IRS delay in the process. From UK-based Lester Aldridge:id_afstand wrote: ↑Tue Oct 03, 2023 2:17 am I wonder how strong is the recommendation not to hold US assets directly for the residents of countries that have a good estate treaty with the US. In other words, how much of a hassle is it for the family to get the assets released.That is for US brokers, and arguably also for non-US brokers. It is an open question as to whether a non-US broker in a US estate tax treaty country, and with no other connections to the US, would (have to, or choose to) follow this process stringently.How long does it take to obtain a transfer clearance certificate from the IRS?
This is, unfortunately, a long process, historically taking between 6–9 months. However, we are currently experiencing processing times of between 15 – 24 months, due to the delays caused by the pandemic. Sometimes the timescale can be much longer if the estate is chosen for audit.
Just another question, if you stay under 60k at a brokerage (IB), would they release it without questions in case of death? Or you may need to prove, for instance, that you don't have other US assets? In other words, does it make sense to hold small amounts of US ETFs?
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Re: W-8BEN
Specifically, Interactive Brokers recently stated that they would release assets without an IRS transfer certificate provided you supply "a letter" confirming the estate held less than $60k in US assets at time of death.id_afstand wrote: ↑Tue Oct 03, 2023 3:59 am Just another question, if you stay under 60k at a brokerage (IB), would they release it without questions in case of death? Or you may need to prove, for instance, that you don't have other US assets? In other words, does it make sense to hold small amounts of US ETFs?
However, this is just Interactive Brokers, and only as of July 2023. Other brokers may differ. And brokerage frontline staff are not always correct on this type of thing. And the IRS changes the rules regularly. And brokers change their policies and interpretation of the rules regularly.
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Re: W-8BEN
Thank you for sharing this information.