W-8BEN

For residents of the United Arab Emirates.
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merryweather
Posts: 1
Joined: Tue Mar 21, 2023 9:34 am

W-8BEN

Post by merryweather »

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!
TedSwippet
Posts: 5181
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: W-8BEN

Post by TedSwippet »

Welcome.
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?
From the W-8BEN instructions:
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.
So assuming you are not a tax-resident of either the UK or Bulgaria, you would need to use your address in the UAE.

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
Love1212
Posts: 3
Joined: Tue Sep 26, 2023 8:19 am

Re: W-8BEN

Post by Love1212 »

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?
TedSwippet
Posts: 5181
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: W-8BEN

Post by TedSwippet »

Love1212 wrote: Mon Oct 02, 2023 10:15 am It's just a risk if you pass away whilst holding it, right?
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.
id_afstand
Posts: 205
Joined: Sun Nov 14, 2021 5:11 pm
Location: The Netherlands

Re: W-8BEN

Post by id_afstand »

TedSwippet wrote: Mon Oct 02, 2023 2:19 pm
Love1212 wrote: Mon Oct 02, 2023 10:15 am It's just a risk if you pass away whilst holding it, right?
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.
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
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Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: W-8BEN

Post by TedSwippet »

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.
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:
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.
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.
id_afstand
Posts: 205
Joined: Sun Nov 14, 2021 5:11 pm
Location: The Netherlands

Re: W-8BEN

Post by id_afstand »

TedSwippet wrote: Tue Oct 03, 2023 3:09 am
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.
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:
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.
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.
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.

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?
TedSwippet
Posts: 5181
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: W-8BEN

Post by TedSwippet »

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?
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.

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.
id_afstand
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Location: The Netherlands

Re: W-8BEN

Post by id_afstand »

Thank you for sharing this information.
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