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What should i know about taxation when investing in U.S. stock exchanges from abroad?

Do i need to file any documents? Are there any treaties for double taxation? (Europe). As an amateur i am looking to invest in an index fund, in case of double taxation am i better of to look somewhere in Europe? Like in german DAX exchange?

I am college student, 23, never filed any tax documents even in my own country.

Thank you for your patience

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You would definitely be better off investing in the home-country mutual funds than doing cross-border investment.

If you're investing through a broker in your home country - I expect that broker would tell you what paperwork is needed.

If you're investing through an American broker, you'll have to file a form W8-BEN with the broker, and claim whatever treaty benefits you may be eligible to (talk to a tax adviser in your home country who's familiar with the US taxation). Unless there are specific treaty provisions, you'll pay US taxes on dividends and will have to file a US tax return if the dividends amount to more than several hundreds dollars a year. In fact, you'll probably have to file a US tax return even for lower amounts, since by default the payer will withhold 30% of the dividends on behalf of your taxes - which is most likely much more than your actual tax on these dividends. You'll have to file a tax return in the US to claim the refund of the excess amounts withheld.

The treaties are between countries. Europe is not a country but a continent, neither North America nor the US have any treaty with Europe.

If you're a college student with minimal amounts to invest, I seriously doubt you would be unable to find a suitable local fund.

  • Thank you for you detail answer. I am from Cyprus, tiny country. Recently there was a legislation to allow Mutual Funds to operate in the country....The country is in a recession. Management in all levels(political etc) is at bare minimum not trustworthy. Cyprus 1999 bull market was 900 points and never recovered currently at 100 points. cyprusrussianbusiness.com/en/finance/macroeconomics1/… The whole tax think is pretty complicated, imagine trying to invest $1000 and having to pay tax advisor. – blended Jan 11 '15 at 11:40
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    @blended consider that you also need to pay income taxes on your dividends/capital gains in Cyprus. Meaning, you'll need to file a tax return at home and pay taxes on your income, in addition to whatever complexity the foreign country imposes on you. Check with local brokers, I'm sure you're not the first one with such a question and they'd have a streamlined procedure to invest elsewhere in the EU or the US. – littleadv Jan 11 '15 at 11:46
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    There are treaties between the US and the European Union. ec.europa.eu/world/agreements/… – PersonX Jan 11 '15 at 13:34
  • @ChrisPhan but not with Europe. – littleadv Jan 11 '15 at 20:23

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