The following discussion only applies if you are a non resident alien, i.e. have no “green card” and normally don’t reside in the U.S. If this is not your case, this page is of no interest for you.

Disclaimer: The information provided here is provided “as is”, does not replace professional tax and/or legal advise, and if you use it is at your own risk. The Small Trader, nor its owners, officers and employees will not be responsible in anyway for any loses or damages that may occur by applying this information. In fact, we strongly encourage to contact with an authorised tax adviser, accountant and lawyer to confirm it, as well as request specific advise for your particular case.

They say that there are two things that cannot be avoided: death and taxes. The first is pretty clear. On the second, maybe you can get a partial relief.

What’s the deal? In short, If you are not an USA citizen and don’t live in the USA, you won’t pay any USA taxes on your trading capital gains… provided the certain conditions.

	You are considered a non-resident alien for tax purposes This means that: (a) You have no “green card”, and (b) you lived less than 31 days in the calendar year being taxed or less than 183 days in the last 3 years (including the current), counting for that: (i) All the days for the current year, (ii) a third of the days on the last year, and (iii) a sixth on the year previous to last. For example, Mr. Wang is a Chinese citizen was living in the USA for 120 days on each of the last three years. He has no “green card”. As he lived more than 31 days in the current year, he may qualify as a resident alien, but calculating the previous years, he lived: 120 x 1 + 120 x 1/3 + 120 x 1/6 days = 120 + 40 + 20 = 180 days. Therefore he qualifies as a non-resident alien for tax purposes. If you don’t live in the U.S. and trade by internet, you certainly are a non-resident alien.
	You lived less than 183 days in the U.S. in the taxed year Sounds redundant, but this is to verify if the 183-day rule applies to you. This rule indicates that “if you were in the US less tan 183-days during the tax year, capital gains are tax exempt unless they are effectively connected with a trade or a business in the U.S. during the tax year”. It will be hard to qualify as a non-resident alien and not qualify for the 183-day rule, unless you do some kind of business in the U.S. See next.
	Your only U.S. income source is stock market trading This means that, for example, you don’t receive wages from US companies, nor provided a service and bill to a US company or person, nor own a U.S. Corporation or LLC. In these cases… all of your U.S. income becomes “effectively connected”, including your stock market capital gains, and therefore taxable. If this is your case, the 183-days rule is not applicable.
	Your trading income is not effectively connected with a U.S. trade or business This means basically that you are not a broker or trade professionally securities in the U.S. That’s easy if you are a small trader.
	You are not owning shares of U.S. companies that distributes dividends Dividends from U.S. companies are not tax free, and the regular 30% tax withholding applies. However, the rest of your trading capital gains continue to be tax-free. Dividends from non-U.S. companies listed in the U.S. stock markets are tax free.

This is, of course, a simplified summary. There are several conditions, restrictions and exceptions applicable. For more details, please refer to the IRS document U.S. Tax Guide for Aliens.

Additional issues

Have in mind that if you are married with a U.S. citizen or resident, maybe this is not applicable to you.

If you qualify as a non-resident alien, and have no connection to any other U.S. business, you have a huge advantage. Having capital gains tax-free allow you reinvest your gains and accumulate your capital quicker.

Maybe your broker is applying a 30%-withholding to your capital gains, and they shouldn’t. If this is happening, very likely there is some paperwork you haven’t done, for example, filling a W8BEN form. (This is done directly with the broker, not the IRS.) Contact your broker and find out the exact procedure.

If your country has a tax-treaty with the U.S., maybe the tax to be retained is lower than 30% and some other special conditions could apply. For an updated list of tax treaties signed by the U.S., go to the IRS article Income Tax Treaties.

Also, even if your country has no tax treaty with the U.S., maybe has a legislation that helps to avoid the double taxation problem (paying taxes both in the U.S. and in your country). Contact your local tax authorities for details.

However… remember death and taxes indeed cannot be avoided. We talk about a partial relief. You may be exempted from the U.S. capital gain tax, but still you likely will have to declare that income to your country tax authorities, and pay the proper taxes.

Good trading!