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OverviewAs a general rule, non-U.S. citizens or residents who receive U.S. source income are subject to U.S. tax. As a brokerage firm located in the United States, Schwab is required to withhold U.S. income tax for its non-U.S. customers on their U.S. source income.In order to satisfy U.S. Internal Revenue Service ("IRS") tax reporting requirements, non-U.S. persons must declare their country of residence and to verify their status as a non-U.S. citizen or resident to the IRS and Schwab on IRS Form W-8BEN. Schwab will then withhold U.S. taxes from non-U.S. customers based on customer's country of residence as declared on the IRS Form W-8BEN. In the absence of a valid IRS Form W-8BEN along with required supporting documents (please refer to the following check list of required documents) on file for each person appearing on the account, Schwab is required to withhold 30% of all sales proceeds and of certain other corporate actions that result in a cash payment to your account. Without a valid IRS Form W-8BEN, Schwab is also required to withhold tax on non-U.S. customers' accounts at the maximum tax rate of 30%, which is generally higher than rates available to residents of countries that have a tax treaty with the United States. Information included in the IRS Form W-8BEN will be reported annually by Schwab to the IRS and to the account on IRS Form 1042-S. Please see IRS Publication 515 for more information on tax rates applicable to non-residents.
Determining Non-U.S. Person StatusA non-U.S. person (or "non-resident alien") is an individual who is not a U.S. citizen or a legal resident of the United States. A foreign person includes a non-resident alien individual, foreign corporation, foreign partnership, foreign trust, a foreign estate, and any other person that is not a U.S. person.If any person listed in the account title is a U.S. citizen or a legal U.S resident, the account may not be classified as a non-resident account. Instead, the account must be opened as a U.S. resident account, with the name of the U.S. person appearing first on the account title. Reportable transactions will be reported under the Tax ID of the U.S. person, who must certify their Tax ID number on an IRS Form W-9. Clients must determine for themselves whether they are or are not residents of the United States. Schwab cannot determine residency for clients. However, if Schwab has knowledge that an owner of the account is a U.S. person, withholding rates applicable to an uncertified U.S. account will be applied to the appropriate transactions until an IRS Form W-9 is received from that person. Return to Top What Is U.S. Source Income?"U.S. source income" is, in general terms, defined under U.S. tax regulations as dividend and interest income earned on securities issued by U.S. companies or U.S. registered mutual funds. In addition, interest earned on U.S. Treasury and U.S. Government agency securities is U.S. source income. Therefore, to the extent that you have dividends or interest from U.S. companies, U.S. registered mutual funds, the U.S. Treasury or U.S. government agencies, the amount will be included in the annual report we are required to send to the IRS.Return to Top What Is the NRA Withholding?Generally, a foreign person is subject to U.S. tax on his/her U.S. source income. Investment income subject to tax includes dividend income paid by U.S. corporations, as well as some interest income. The non-U.S. person tax rate is 30%, although a reduced rate, including an exemption from tax, may apply if there is a tax treaty between the foreign person's country of residence and the United States. Schwab is required to withhold this tax ("NRA withholding") from payments made to the foreign person.Brokerage firms located in the United States are required to report to the IRS once a year on IRS Form 1042-S all U.S. source income for each account at the firm. Payments to all foreign persons, including nonresident alien individuals, foreign entities and governments, may be subject to NRA withholding. You should consult with your own tax advisor to determine whether any U.S. tax withheld from any income credited to your account may qualify for a foreign tax credit in your jurisdiction of residence. Return to Top IRS Form W-8BEN and NRA WithholdingIn order to have the correct amount of tax withheld - which can vary from 0% to 30%, depending on the account holder's country of residence -- a non-U.S. person must have provided to Schwab a valid IRS Form W-8BEN along with any supporting documentation required by the IRS or by Schwab (please refer to the following check list of required documents). |
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