Investing in US stocks has become increasingly popular among investors all over the world. However, understanding the tax obligations associated with such investments is crucial. This article explores the key taxes applicable to Taiwanese tax residents (who are not US tax residents) when holding US stocks.
What Taxes Do You Need to Pay?
1. US Withholding Tax on Dividends (30%)
Investors who are non-US tax residents are not subject to capital gains tax of the US when selling US stocks. However, any cash dividends received are subject to a 30% withholding tax by the US government before the dividends are credited to your account.
Example:
If you receive a dividend of USD 1,000 from a US stock, the US government will automatically withhold USD 300, and you will only receive USD 700 in your account.
2. Taiwan's Overseas Income Tax
Under Taiwan’s tax law, income earned from foreign investments, including US stocks, US ETFs, and overseas bonds, is considered overseas income.
Overseas Income Tax Scenarios
Scenario | Tax Treatment in Taiwan |
Overseas income ≤ NTD 1 million | No need to file for overseas income; it is not included in basic income. |
Overseas income > NTD 1 million, but total basic income ≤ NTD 7.5 million | Filing for overseas income is required, but it is not subject to the Alternative Minimum Tax (AMT). |
Overseas income > NTD 1 million, and total basic income > NTD 7.5 million | Filing for overseas income is required, and it is subject to the Alternative Minimum Tax (AMT). |
Key Takeaway:
Most investors will not need to pay additional tax in Taiwan unless their total basic income exceeds NTD 7.5 million.
Important Notes on US Dividend Withholding Tax
The 30% US dividend tax applies regardless of whether you invest through a Taiwanese broker (via sub-brokerage) or a foreign brokerage.
Since the tax is automatically withheld, investors do not need to file separate tax returns in the US.
Even though US capital gains are not taxed in the US, they must still be reported in Taiwan if they meet the overseas income reporting threshold.
Conclusion
For Taiwanese investors, the main tax obligations when investing in US stocks are the 30% withholding tax on dividends in the US and the potential overseas income tax in Taiwan. However, unless an investor earns a substantial amount from overseas sources, they may not be liable for additional taxes in Taiwan. Understanding these rules can help investors plan their finances effectively and avoid unnecessary tax liabilities.
Additionally, you might be eligible for a lower tax rate due to the US-Taiwan tax treaty and may also be able to claim Foreign Tax Credit to offset some of the taxes paid abroad.
Always keep records of your overseas earnings and consult a tax professional for personalized advice!
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