 Tax
obligations of non-U.S. citizens
|  Dear
Tax Talk,
My parents, foreign citizens who live
overseas, will be visiting the United States shortly and want to open a bank account
here. I am a U.S. citizen and live in New York.
As
foreign citizens, are my parents liable for U.S. capital gain taxes? Also, I want
to get a nondurable financial power of attorney to be able to manage their account.
Do I become liable for capital gain taxes on their account if I become an agent
for it? Thanks a lot. -- Victoria
 Dear
Victoria,
To encourage investment by foreigners in the United States,
certain tax exemptions are available.
If your parents are
opening a bank account where they'll earn interest on deposited funds, the interest
is tax exempt to them. The financial institution will ask your parents to complete
IRS
Form W-8BEN to qualify for the tax exemption. Foreigners
also do not pay capital gains taxes on the sale of stocks and bonds. There would
be no capital gains associated with a bank account earning interest, so I'm not
sure if this exemption would be of importance to them. Although
a foreigner pays no tax on the sales of securities, there is income tax withholding
on dividends earned and in certain cases on corporate bonds. If your parents do
not come from a country that has an income tax treaty with the United States,
the withholding is at the rate of 30 percent. Treaties generally reduce the rate
to 15 percent. A foreigner who owns U.S. stocks and bonds
is subject to estate tax on the value of the investments, not so with a bank account.
The estate tax can be avoided if the stocks are held through a foreign corporation
that your parents establish. This is more complex but worth exploring if the investment
is more than $60,000. If you're only acting as your parents'
agent, you will not be held liable for taxes on their investment. Just make certain
that the account is established in their name without your name as the owner. | 
