Recent call from readers whose US assets have been caught in the middle of US investment firms' compliance squeezes reminded me that I have not commented about the tax implications and ramifications of owning US investments for quite a while.

Bermudians (and other Foreign citizens) have often diversified their investment and real estate holdings by purchasing and holding assets in other countries. Unfortunately for the most part, these moves are made without consulting an international tax professional who can advise as to the most appropriate method of holding any other country's onshore assets, both from the perspective of minimising the tax impact from another country's regulatory authorities, as well as maintaining a clean estate in the event that the owner passes unexpectedly. For purposes of this article, we will address only the tax regime imposed upon Bermudian (or other foreign clients) purchasing tangible and intangible assets in the United States, very often in the form of individual brokerage accounts, or real estate property such as condominium or a vacation cottage. While US citizens and residents are subject to Federal (and many States) income taxation on their world wide income, foreign clients maybe be classified (notice I said may) as Non-Resident Aliens (NRA's) who are only subject to tax on certain types of These three letters-NRAhave significant connotations. If you are not categorised correctly at your US brokerage firm (by having a W-8BEN on file), you will be considered a US citizen or resident for tax purposes.paid to foreign clients by US borrowers is generally subject to 30% withholding tax at source, except for certain corporate debt issued after 1984, and interest paid on deposits with a United States bank. not connected to US trade or business of the NRA is also subject to 30% tax on the gross amount of income paid.

is generally exempt, as long as the NRA was not present in the United States for 183 days or more in the year in which the gains were realised.from real property owned by NRA's (or interests in US corporations which primarily own US real estate) located in the United The purchaser (or the titling or closing agent) is required by law to withhold 10% of the on disposition by the NRA, regardless as to whether a profit has been made by the NRA seller. real property is sold, the state coffers will also be looking to receive their share of the profits.ally, when I mention this to an interested party, the next comment is, well, "I won't have to worry because how is anyone going to find out." The arm of US Internal Revenue Service is very long. With the exception of the reporting evasion by cash underground economies, every transaction, whether a purchase or a sale in the United States today, must provide a verifiable paper trail. Submission of this documentation to Internal Revenue Service by real estate closing agents, title companies, banks, brokerage firms, mutual fund companies, etc. is enforced through penalties, fines, and prosecution, if necessary, to bring about full compliance. Uncle Sam has become very good at estimating income earned (and taxable profits). Even the seamier side of life has not escaped. In one classic tax evasion case of a massage parlour owner, the IRS was able to estimate the amount of profits earned (and thus tax to be paid) by counting the number of towels sent to the laundry on a daily basis. Needless to say, the penalties for fraud and interest assessed on the tax liability of the individual were huge. The above was an example (of the house of ill repute) was of a US citizen. What distinguishes them from us people offshore? Ignoring residence issues for a moment, the answer is the filing of a simple form called a W-8BEN. Since the step up in world wide Anti-Money Laundering regulations, all financial institutions supporting US IRS QI regulations have asked clients to file these forms. Clients have hated every minute of it, but reading the fine print, the statement merely affirms that you are not US citizen and are not subject to income taxation on world wide income. Without that piece of paper, you may be treated as if you were a US citizen trying to avoid taxation and will be withheld on every single time. he brokerage firm or whomever, does not keep this tax, but immediately sends it the withheld tax directly to Internal Revenue Service. Now, it is time to deal with Uncle Sam himself.

items incorrectly withheld, you will have to file an income tax return (as a non-resident alien) and request the withholding back by providing sufficient documentation to the effect that you did not owe a tax, i.e. indicating that you are not subject to withholding on investment capital gains, of for real estate, original cost basis minus sale proceeds actually produced a loss.

The real estate sale may trigger other prior year filing issues as often these properties have been rented and the NRA has never filed a tax return to declare the rental income earned from US sources. Innocuous on the surface, if you check the wrong boxes, or use the wrong supporting documentation, you could find yourself entrenched further in the US Internal Revenue Service web. Get experienced international tax expertise to help you. If you are entitled to the withholding refund, not only will you get it back, but Uncle Sam will pay you interest.

Martha Harris Myron CPA/PFS CFP? is a Bermudian, and VP, Investment Centre, Bank of Bermuda, where she provides investment advisory services and financial planning. She also holds a NASD Series 7 license, and formerly owned a US financial services practice meeting the needs of 400 individual and corporate clients. She can be reached at