Do I have to pay tax on capital gain if i trade stocks in the US?

Question

Remark: I'm non US resident.

About withholding tax on dividend, it will be up to tax treaty btw the US and my country, won't it?

Answer 1

If you are student, different rules apply.

http://www.irs.gov/businesses/small/inte...

To get the treaty rate, you have to file form W-8Ben and give your ITIN.  The W-8Ben will expire every few years and your brokerage house often will forget to to tell you it did until after they have withheld 30% for taxes and sent the money to the IRS (you'd have to file anyway, so you'd get the excess back when you file).

And, if you die, if you have more than $60,000 in US stocks, your heirs have to file a US estate tax return (706NA).

Answer 2

If there is no tax treaty, yes you do.  If your country has a tax treaty with the US, then it depends on what the treaty is.  Generally you have to pay taxes at least at one of the countries, maybe both. Often there is a deduction in say your country so that the taxes you pay to the US gets deducted or credited in your country.  You will have to check with your counties tax department to get the full scoop.

Answer 3

ninasgramma generally has the right answer.

If you are not a U.S. resident and your income is not connected with a trade or business in the United States, capital gains on purchase and sale of stock is not taxable in the U.S.  However, dividend income will be subject to withholding at a flat percentage presumed to be 30%, but possibly at a lower rate if the U.S. has a treaty with your country of residence.   Some treaties reduce the dividend withholding rate to 15%; others wipe it out altogether.  

The applicable rule is found in IRS Treas. Reg. section 1.871-7(a).  

ninasgramma is also correct about the fact that trading stocks and securities for your own account is not a trade or business.  The applicable rule is found in 26 USC section 864(b)(2)(A)(ii).  

The one thing that is slightly off in ninasgramma's answer is the residency point.  It's still possible to become a U.S. resident even if you're in the U.S. for less than 183 days.  If you are in the U.S. for more than 30 days and you were in the U.S. for an average of 122 days or more over each of the last three years, you can still get caught as a U.S. resident.  If you haven't been in the U.S. at all, this rule can have no effect on you.

Answer 4

This is too complicated issue for a simple answer. The source below explains the issues involved.

Answer 5

You will probably have to pay a foreign tax, but i think that with a tax treaty you might pay nothing or less than other people. Not completely sure, but thats what I think.

Answer 6

If you were in the US for less than 183 days in the year, your capital gains (with some exceptions) are tax exempt unless they are effectively connected with a trade or business in the US during the year.

If you trade stocks on your own account, that is not considered "effectively connected with a trade or business".

For details and exceptions, see the IRS publication cited.

To be be subject to reduced withholding on dividends, you need to submit form W8-BEN, available from your financial institution or irs.gov.

Added later:  The reference to 183 days above is quoted from the IRS publication cited and applies to all nonresidents, such as yourself.