Does foreigner need to file tax return on assets? Tax Talk by George Saenz • Bankrate.com

Dear Tax Talk,
I am U.S. nonresident alien. I am saving for my retirement in the United States. I have a brokerage account and my savings are in the form of U.S. and foreign ADRs and mutual funds. My portfolio now exceeds $230,000. My question is this: Do I need to file a U.S. tax return if all the income I receive is already withheld by brokerage firm?
-- Milind

Dear Milind,
A nonresident alien, or NRA, is an individual who is not a U.S. citizen or green-card holder.

Additionally, regardless of immigration status, an NRA is an individual who does not reside:

1.) in the United States for more than half the year, or
2.) for more than four months over a three-year period and maintains a closer connection to a foreign country. A closer connection to a foreign country means having stronger ties to their home country, such as residences and family. The concept of closer connection is explained in Form 8840.

An individual illegally present in the United States can be considered a resident of the United States for income-tax purposes regardless of his immigration status.

An NRA is subject to withholding taxes on income from U.S. sources. Generally, this tax is at the rate of 30 percent on dividends. If you're from a country with which the United States maintains an income-tax treaty, you may be eligible for a reduced rate. Publication 901 provides information on U.S. income-tax treaties. There is no tax on capital gains from the sale of U.S. stocks for an NRA, regardless of an income-tax treaty. If all you have is the brokerage account and the appropriate tax is withheld from your income at the source (i.e., by the broker) you would not be required to file Form 1040NR.

As a word of caution, you should realize that U.S. stocks held by an NRA are subject to estate tax should you die with these assets. An NRA is only allowed to claim an exemption on the first $60,000 of U.S. assets. Anything in excess of this exemption is taxed at rates starting at 26 percent and rising rapidly to 32 percent and more. For example, your heirs might lose $51,000 of your $230,000 account to U.S. estate taxes if you should die.

There are death-tax treaties as explained in the instructions to Form 706NA. You might want to consider, among other things, establishing a foreign corporation to own the brokerage account, which would avoid estate tax.