I'm an Indian citizen, living in the U.A.E. The U.A.E. does not have a tax treaty with the U.S., so, tax treaties don't affect the equation, which makes things simple.

I've read that there is a different tax rate for Americans in the United States for selling off shares within a year compared to selling them off after a year. I understand that it's 15% for long-term and 30% for periods less than a year.

Is this the same for non-U.S. resident foreigners investing in the U.S. stock market? Or is it a flat 30% regardless of time period?

  • where is the connection to the United States? – mhoran_psprep May 26 '19 at 16:28
  • Sorry, I should have clarified. I want to invest in U.S. securities. I've edited the question to make that more clear. – Zesty May 26 '19 at 16:29
  • In which sense are the capital gains "in the US"? Just that you plan to use a US-based broker to execute your trades? – hmakholm left over Monica May 26 '19 at 23:03
  • @HenningMakholm The securities are American companies and the investment platform is also an American company. It's the U.S. stock market. – Zesty May 27 '19 at 8:11
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    I can't help with the rules for aliens. I just wanted to note that the 15% for long-term gains is the maximum. Persons with low total income would pay less. Of course, most persons with low income have no capital gains, but not always. Short-term gains are (to over-simplify) treated as ordinary income, which can be taxed up to 37%. – Andrew Lazarus May 28 '19 at 23:55

What you're referring to is the long-term vs the short-term capital gains tax rate, which depends on the income bracket you fall into. For residents, the long-term rates can be 0%, 15%, or 20%. The short-term rates are treated the same as normal income.

Non-residents are subject to a withholding tax of 30% on dividends, but you get 15% because of a tax treaty (see here last column). Additionally, you still get hit by the 30% tax, lowered to 15% by treaty, on capital gains since its FDAP that is not Effectively Connected Income to US businesses and trade, which is explicitly mentioned here.

So, simply put, you get hit by a 15% tax from the India-US tax treaty on everything.

Edit: actually, I'm not sure how living in the UAE changes things. You will be living under 3 tax regimes: India, UAE, and US, and I can't even fathom how they begin to interact with each other. I'm semi-confident that you still get 15% from the treaty with India, since the UAE shouldn't be taxing you on foreign income (seeing as the US in unique in its insistence on taxing all the money of its residents). I'm not very confident in my answer, so if anybody knows more feel free to correct me.

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  • (I'm pretty sure) capital gains are not FDAP. Pub 519 chapter 4 under "30% tax" (for not-effectively-connected income) has FDAP in one section (taxed) and "Sales and Exchanges of Capital Assets" except real property in a different section that says, with limited exceptions, they are exempt if you are in the US less than 183 days during the year, and OP is apparently in the US 0 days. Your link lists that real property gains are US-taxed but doesn't mention any others. – dave_thompson_085 Jun 16 '19 at 14:43
  • Note that there is an estate tax of up to 40% on US situs assets of non-residents. – user2371765 Jun 20 at 17:06

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