Bond fund distributions to NRA


N

NoClue

As I understand it, U.S. sourced interest income is tax free to NRA.
But dividends from U.S. companies are taxed. How about "dividend"
from bond funds whose distributions are sourced by interest income?
Are those distributions taxable to NRA?

TIA
 
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A

Alan

As I understand it, U.S. sourced interest income is tax free to NRA.
This first statement is not necessarily true.
But dividends from U.S. companies are taxed. How about "dividend"
from bond funds whose distributions are sourced by interest income?
Are those distributions taxable to NRA?
For a complete answer see pages 15 and 16 of IRS Pub 519. It explains
what interest is excluded or taxed and which dividends are taxed or
excluded or when certain interest related dividends are tax-exempt.
 
N

NoClue

On 9/17/2010 9:08 AM, NoClue wrote:> As I understand it, U.S. sourced interest income is tax free to NRA.

This first statement is not necessarily true.


For a complete answer see pages 15 and 16 of IRS Pub 519. It explains
what interest is excluded or taxed and which dividends are taxed or
excluded or when certain interest related dividends are tax-exempt.
Thank you for the pointer. On p.16, it states that there is no 30%
tax on ".... interest-related dividends from sources within the United
States that you receive from a mutual fund or other regulated
investment company. The mutual fund will designate in writing which
dividends are interest-related dividends."

Are closed-end funds traded on stock exchanges considered to be mutual
funds or regulated investment company? [On the fund's web site, it
states that "...closed-end funds are registered with the SEC pursuant
to Form N-2..."]

Assuming the dividends are interested-related, do the bond funds
routinely make that designation?

TIA
 
A

Alan

On 9/18/2010 10:51 AM, NoClue wrote:
[snip]
Thank you for the pointer. On p.16, it states that there is no 30%
tax on ".... interest-related dividends from sources within the United
States that you receive from a mutual fund or other regulated
investment company. The mutual fund will designate in writing which
dividends are interest-related dividends."

Are closed-end funds traded on stock exchanges considered to be mutual
funds or regulated investment company? [On the fund's web site, it
states that "...closed-end funds are registered with the SEC pursuant
to Form N-2..."]
Yes.

Assuming the dividends are interested-related, do the bond funds
routinely make that designation?
That information is on the 1042-S form sent to NRAs (assuming you
furnished the fund with the required document establishing you are an NRA).
 
N

NoClue

On 9/18/2010 10:51 AM, NoClue wrote:
[snip]


Thank you for the pointer. On p.16, it states that there is no 30%
tax on ".... interest-related dividends from sources within the United
States that you receive from a mutual fund or other regulated
investment company. The mutual fund will designate in writing which
dividends are interest-related dividends."
Are closed-end funds traded on stock exchanges considered to be mutual
funds or regulated investment company? [On the fund's web site, it
states that "...closed-end funds are registered with the SEC pursuant
to Form N-2..."]
Yes.

Assuming the dividends are interested-related, do the bond funds
routinely make that designation?
That information is on the 1042-S form sent to NRAs (assuming you
furnished the fund with the required document establishing you are an NRA).
The fund will be bought through a brokerage firm and it will be in
street name; and the broker will be provided with W8(?).

The 1042-S seems to be the equivalent of 1099 for U.S. owners that are
sent out after the end of year. My concern is the withholding tax at
time of distribution. So, the question is whether the Fund will make
that designation at time of distribution to the agent making the
distribution. If not, then 30% tax will be withheld. If that is the
case, how do the NRA recoup the w/o tax? The broker will reimburse
the NRA owner and claim it back from the gov't? Or the NRA has to
file a tax return to claim the over withholding?

TIA
 
A

Alan

On 9/19/2010 11:19 AM, NoClue wrote:
[snip]
The fund will be bought through a brokerage firm and it will be in
street name; and the broker will be provided with W8(?).

The 1042-S seems to be the equivalent of 1099 for U.S. owners that are
sent out after the end of year. My concern is the withholding tax at
time of distribution. So, the question is whether the Fund will make
that designation at time of distribution to the agent making the
distribution. If not, then 30% tax will be withheld. If that is the
case, how do the NRA recoup the w/o tax? The broker will reimburse
the NRA owner and claim it back from the gov't? Or the NRA has to
file a tax return to claim the over withholding?
I just can't remember, but I believe if you file the W8-BEN with your
broker that reflects you are an NRA there shouldn't be an issue. The
last instruction on the form states that you instruct the broker to
forward the form to the withholding agent. That being said, you would
have to file a 1040-NR to obtain a refund of any tax withholding.
 
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N

NoClue

On 9/19/2010 11:19 AM, NoClue wrote:
[snip]


The fund will be bought through a brokerage firm and it will be in
street name; and the broker will be provided with W8(?).
The 1042-S seems to be the equivalent of 1099 for U.S. owners that are
sent out after the end of year. My concern is the withholding tax at
time of distribution. So, the question is whether the Fund will make
that designation at time of distribution to the agent making the
distribution. If not, then 30% tax will be withheld. If that is the
case, how do the NRA recoup the w/o tax? The broker will reimburse
the NRA owner and claim it back from the gov't? Or the NRA has to
file a tax return to claim the over withholding?
I just can't remember, but I believe if you file the W8-BEN with your
broker that reflects you are an NRA there shouldn't be an issue. The
last instruction on the form states that you instruct the broker to
forward the form to the withholding agent. That being said, you would
have to file a 1040-NR to obtain a refund of any tax withholding.
What is the equivalent form (to 1040-NR) for a foreign corporate owner
which does not conduct a trade or business in the U.S. and has the 30%
taxes withheld at source?

TIA
 
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A

Alan

On 9/19/2010 11:19 AM, NoClue wrote:
[snip]


The fund will be bought through a brokerage firm and it will be in
street name; and the broker will be provided with W8(?).
The 1042-S seems to be the equivalent of 1099 for U.S. owners that are
sent out after the end of year. My concern is the withholding tax at
time of distribution. So, the question is whether the Fund will make
that designation at time of distribution to the agent making the
distribution. If not, then 30% tax will be withheld. If that is the
case, how do the NRA recoup the w/o tax? The broker will reimburse
the NRA owner and claim it back from the gov't? Or the NRA has to
file a tax return to claim the over withholding?
I just can't remember, but I believe if you file the W8-BEN with your
broker that reflects you are an NRA there shouldn't be an issue. The
last instruction on the form states that you instruct the broker to
forward the form to the withholding agent. That being said, you would
have to file a 1040-NR to obtain a refund of any tax withholding.
What is the equivalent form (to 1040-NR) for a foreign corporate owner
which does not conduct a trade or business in the U.S. and has the 30%
taxes withheld at source?

TIA
Not my area of expertise, but I assume its the 1120-F (US Income Tax
Return of A Foreign Corporation).
 

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