What is the issue?
Non-US investors are subject to different treatment on their US investments, depending on whether the investor is an individual, company or trust.
Investors should be aware of the potential US tax exposures so that they can seek advice on the consequences of existing and proposed investments and plan accordingly.
The first step is to establish whether the individual, company or trust is non-US resident, which is not covered in this note. For trusts, it is also necessary to establish whether the trust is a 'grantor' or 'non-grantor' trust, and if it is a 'grantor' trust then to establish the identity of the grantor (normally the person who settled or contributed funds to the trust). Once these facts have been established, the tax position is as follows:-
Non-US individuals, companies and trusts are generally taxed at a flat rate of 30% on income from most passive US investments. Certain investments are exempt from income tax (e.g. bank deposit interest), and furthermore the 30% flat rate can be reduced by a treaty. US real estate income is taxed at 30% on gross receipts unless an election is made to tax the income with a deduction for expenses at graduated rates up to 37% for individuals and 21% for companies. US business profits are also taxed at graduated rates up to 37% for individuals and 21% for companies. Gains are generally exempt from tax for non-resident individuals, companies and trusts, the main exceptions being for US real property and property connected with a US business. With respect to trusts, the above rates generally apply irrespective of whether the trust is a grantor or non-grantor trust. However, with a grantor trust, the tax is payable by the grantor rather than the trust.
The corporate rate was previously 35% and was reduced to 21% from 1 January 2018. Corporate ownership of US investments may therefore be more attractive than previously, particularly bearing in mind the potential estate tax benefits (see below). Note that non-US companies may also be subject to an additional "branch profits tax" of 30% on US source business profits and rental income, which can be reduced under a treaty.
Gift and estate tax