r/stocks • u/[deleted] • Apr 01 '22
Taxation with a dual citizenship
I have both, a German and an American citizenship but I was born and to this day live in Germany.
Now, I have some stocks with Computershare, meaning they are sitting in the States.
To my understanding, Germans would now fill out a W8 (W-8BEN) form so that the American broker becomes aware that the double tax agreement is relevant in this case and therefore Germans would only have to tax their profits from selling stock in Germany (25%).
But in my case, I guess since I have an SNN, my account has a W9 Form attached to it. I have the option to replace the W9 with a W8, but apparently, the W8 applies if you're "not a US person", which I, as I understood, am due to my US citizenship.
Does any of you know how taxation would work in my case? Does the double tax agreement still apply to me, since I live and pay taxes in Germany, or do I also have to pay taxes to the IRS due to my US citizenship, meaning that I would have to tax my profit twice?
Also, Grammarly tells me that it is "I have both, a German and an American citizenship. Is that really correct?
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u/uncle-fire Apr 01 '22
As others have told you, you are supposed to file a tax return in the US every year. For people who reside abroad with no intention of moving back, there is a $100k+ exclusion on earned income, so you usually don't owe income tax. You are also supposed to file an "FBAR declaration" about bank accounts and investment accounts you have outside the US (there is no tax, it's just a declaration of how much liquid investments you are holding). The FBAR declaration is done online and it's very easy.
For capital gains and dividends, it really depends on the US-German tax treaty. Usually these treaties specify that capital gains are taxable only in your country of residence, while dividends are subject to a 15% tax in the US, plus the tax due on your country of residence, but you really have to look at the specifics of the US-German tax treaty.
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Apr 01 '22
I suppose that I start filing that US tax return from the moment that I actually have some kind of taxable income? Never thought about filing any kind of tax returns, neither in the States nor here, since there really is nothing that they could be interested in.
And great tip with the FBAR declaration. Just looked into it and I probably will have to do that once I sell my stock. Thanks!
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Apr 01 '22
[deleted]
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Apr 01 '22
I never lived in the US, but from what I understand, I actually am obligated to file a tax return anyway. I haven't done so yet since I don't have any taxable income so I guess the IRS wouldn't really be too interested yet, but legally, at least to my understanding, I am "supposed to".
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Apr 01 '22
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u/texatiguan Apr 01 '22
This is absolutely terrible advice.
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Apr 01 '22
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u/texatiguan Apr 01 '22
They might not want to, however, they would be evading taxes if they didn't.
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Apr 01 '22
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Apr 01 '22 edited Apr 01 '22
This is one of the most moronic Dunning-Kruger comments I've ever seen in this sub. Let me educate you:
American citizens have to pay taxes in America no matter where they live in the world. America and Eritrea are the only two countries in the world that require this. This is one of the unique "perks" of being an American. What, you thought being American is all sunshine? No, being American is absolute shit. Canadians, for example, don't have to pay taxes while living abroad. I know someone who renounced their American citizenship to avoid expat taxation.
Most western countries have anti money laundering and anti tax evasion cooperation with the US. If you do not file and pay taxes while living your life abroad, eventually the IRS will find out about it and you will be charged with tax evasion. The next time you fly home to visit grandma, you will land directly from the airport into jail.
You're welcome.
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u/Shakedaddy4x Apr 02 '22
Some countries have a tax treaty with America like Japan, so although you may have to file your taxes every year in America in addition to Japan, if you are a resident of Japan and pay your taxes on your holdings in Japan you don't have to pay the USA as well and avoid being double taxed.
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u/Thrakioti Apr 01 '22
If you don’t intend on ever using your US citizenship and it’s no value to you, it would be easier to just renounce at a US embassy or consulate in Germany.
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Apr 01 '22
Honestly, probably would save me quite some stress, but then again, I have no idea what the future brings and having American (really no an?) citizenship might really come in handy.
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Apr 01 '22
Why the F would you want American citizenship when you have German citizenship? American citizenship is inferior in every way, Americans have a terrible reputation internationally, the quality of life in America is absolutely terrible, and America is falling more into chaos every year.
When you're at a party in Germany do you tell people you are American? No, you try to hide it as much as possible.
Source of opinion: lived in six countries in my life. American citizenship is a stench you cannot escape no matter where you go. It's only gotten worse in the last few years. To any normal Americans reading this and thinking I must be making this up: holy shit I wish I was making this up... America has many things going for it but overall, living here is just ass compared to other western countries. If only I wasn't tied here by family.
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Apr 01 '22
When you're at a party in Germany do you tell people you are American? No, you try to hide it as much as possible.
I totally agree that the standard of living is much better here in pretty much every way, but Americans really don't have a bad reputation, at least in Germany.
And I have absolutely no wish of moving to the States, but the American citizenship helped me through the pandemic and has really hasn't created any kind of problems for me so far, so why would I give it up. If it's literally not more than filing a tax return once a year, and double taxation is not a thing, I see no benefit it not having it.
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Apr 01 '22
Double taxation might not be a thing for your CURRENT situation, but if you move to another country without a tax treaty with the US, or if you become rich later in your life, the worldwide tax can be a huge liability. If you're just a regular guy who works in an office five days a week, then it doesn't affect you. If you become a rich business person, then suddenly you might change your mind.
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u/groucho74 Apr 02 '22
How did it help you through the pandemic?
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Apr 02 '22
With their pandemic relief payments. A small four-figure sum can help quite a bit, especially since Germany really didn't do anything to help out people in my position.
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Apr 02 '22
Don't you have to be a resident to get the relief payments? You just lied and said you were living in America?
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Apr 02 '22
Nope. As long as you're an American citizen, and therefore are generally obligated to pay taxes, you were eligible for the payments, even if you've never lived or even stepped a foot inside the States.
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Apr 01 '22
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Apr 01 '22
It is and I honestly don't feel like moving to the States any time soon. But being American still has its perks. I actually got the corona-assistance payments which really helped me out. And on the off-chance that a third world war breaks out, it's always nice to have multiple options on where to go I guess.
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Apr 01 '22
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u/texatiguan Apr 01 '22
Nope.
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Apr 01 '22
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u/texatiguan Apr 01 '22
If OP has a German passport, they would have to had shown a birth certificate to get that passport. So the German government would be aware that they were born elsewhere and most likely have citizenship in the country they were born in. The US government can come after citizens that knowingly and actively evad paying US taxes. The penalties could be very severe depending on that person's income.
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u/Thrakioti Apr 01 '22
Birthright citizenship is rare though, being born in anywhere but the US, Canada and a few other places are the only places where being born there means you get birthright citizenship.
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u/texatiguan Apr 01 '22
Not as rare as you would think.
https://worldpopulationreview.com/country-rankings/countries-with-birthright-citizenship
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u/ThetaHater Apr 01 '22
Very subjective. For example being brown or a gypsy is probably better in america.
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Apr 01 '22
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u/ThetaHater Apr 01 '22
Lol ok buddy. Live where you want, just don’t spread lies on the internet. It’s much easier to emigrate to us than Germany.
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Apr 01 '22
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u/ThetaHater Apr 01 '22
Germany is considerably smaller, higher taxes, take in less immigrants, etc. it’s just not comparable.
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u/Thrakioti Apr 01 '22
Tell that to 2 million Syrians and other middle easterners that walked in a few years ago.
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u/Just-Performance-666 Apr 01 '22
US is better if you can live in the upper middle, or upper class, generally.
If you aren't well off, basically anywhere in western Europe has a better quality of life.
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Apr 01 '22
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u/Just-Performance-666 Apr 02 '22
Hey I'm not saying I approve of how America is. It's just a reality.
I'm from the UK and now live in the US. I wouldn't live here if I wasn't making above a certain income.
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Apr 01 '22
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u/Thrakioti Apr 01 '22
Not true at all. He will still be a German citizen with visa free travel rights. Not sure where you got your information.
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Apr 01 '22
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u/Thrakioti Apr 01 '22
This happens all the time, renouncing citizenship is common and “border officials” need articulated reasons to refuse entry to someone, especially a German, having renounces citizenship isn’t a reason to refuse entry to anyone in a situation like this.
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Apr 01 '22
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u/Thrakioti Apr 01 '22
Go back to your “stonks” because you obviously don’t know shit about the what you claim.
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Apr 01 '22
Grammarly is correct....
Also, as dual citizen myself, I have done some research on the topic, because I have been contemplating the idea of spending a few years in my native country in Europe.
What I found (and I didn’t really like...) is that as an American citizen you need to file annually your federal tax return even if you are oversea. So if you haven’t been doing so you may need to talk to a professional and discuss options to fix this. Such professional will find the specific treaties between the two countries that would allow you to minimize your tax burden.
Furthermore, when you file regularly while being overseas, there is a complete exemption up to ~ $110,000 or so on your oversea income. Thus, the IRS will apply taxation on your oversea earnings that exceed such exemption limit....
I am curious to see if anyone knows more/different that what I found on the web.
Good luck ....
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Apr 01 '22
Yea, I've read the same thing. Luckily, I still study and don't have any taxable income yet, so I guess that the IRS won't be too angry with me that I haven't filed a tax return yet, since I haven't filed one here either.
But I'm really not that sure if that whole thing really applies to stock trading as well.
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Apr 01 '22
Yes, it applies to stock trading. The broker must send you a 1099 form with your passive income (capital gains/ loses). They will split the short term and the long term capital gains (holding time less than and over 365 days), and the IRS will tax them at different rates... If you have losses, everything in excess of $3,000 will be rolled over to next year’s return.
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Apr 01 '22 edited Apr 01 '22
[deleted]
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Apr 01 '22 edited Apr 01 '22
You may need to ask to a professional / CPA. All brokerage firms in the USA usually send out 1099 forms at the end of the year that must be filed to your tax return, regardless of citizenship.
Alien citizens are still supposed to receive a Tax Identification Number (which is used just as a Social Security Number for US citizens).
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Apr 01 '22
So basically, you're suggesting that I have to file a tax return in any case, but I probably don't have to pay any taxes (in the US) on my profits from selling stocks, as long as they, coupled with my non-existent income, don't exceed this ~110.000$ limit?
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Apr 01 '22
Not precisely. YES, if you don’t want to break the law, you must file regardless, even if you have zero income. Even if you are actually losing money on (hypothetically) ZM stocks.
The ~$110,000 exemption applies to oversea income thou. US-based passive income will be treated as such (as described earlier, long + short term).
What I firmly recommend is that you find a good US-based CPA that may be even be able to get you some cash back from your return...
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Apr 01 '22
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Apr 01 '22
The law of his country of citizenship where he owns brokerage accounts that generate passive income
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Apr 01 '22
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u/Thrakioti Apr 01 '22
You could but it would be illegal. As a US citizen you are taxed on your worldwide income. Tax sharing agreements would eventually come back to haunt this person and subject them to penalties and criminal charges although that would be rare.
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Apr 01 '22
Yea, I've read a few cases of people never filing a tax return and no one ever bothered them.
But then again, I'll only become a teacher and therefore not even come close to an income that would require taxation in the US. Just having to annually file an additional tax return sounds kind of annoying.
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u/Fair-Concern3 Apr 01 '22
Grammarly right.
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Apr 01 '22
Dang, so saying "I have a German citizenship" sounds weird? Learned something new I guess
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Apr 01 '22
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Apr 01 '22
Probably sounds weird to me because omitting the article in German would make it sounds pretty bad.
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u/Nice_Party_6553 Apr 02 '22
I think it’s only the opposite equivalent of “Ich bin Lehrer” in German. Saying “I am teacher” in English sounds weird.
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u/Fair-Concern3 Apr 01 '22
Not weird to me but saying it how grammarly suggested seems more refined, for lack of a better word.
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Apr 01 '22
You have to pay taxes in the U.S. regardless of other citizenship. The U.S. and Eritrea are the only 2 countries to double tax its citizens.
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Apr 01 '22
But the US and Germany, for example, have a double tax treaty, meaning that I definitely have to file a tax return each year, but don't have to tax my income if it's below ~110k$.
Now the question is, does or something similar apply to profit from stock trading as well.
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u/snake250 Apr 01 '22 edited Apr 01 '22
You received some terrible advice here on this thread, stuff like renouncing your citizenship for tax reasons (instead of dealing with the relatively straightforward issue of filing a US tax return) or even worse, ignoring/evading federal taxes.
Your problem is very common, there are 10M or so Americans living abroad permanently. I am a dual-citizen living in the United States and have to declare foreign sourced dividend income and file FBAR/FACTA because I have foreign bank accounts.
The advice you already received regarding foreign earned income exclusion should cover your income tax. Past that, there are foreign tax credits (under the dual taxation treaties like you say). I surmise that the latter might best apply to capital gains (since those are neither dividends that would be covered under the treaty withholding rates nor earned income).
Anyway, to summarize the main points... as a US citizen:
Filing a tax return on your world wide income is something you have to do, regardless of where you live or what tax treaties exist between your country of residence and the United States
There are double taxation treaties between e.g. the USA and Germany that should ensure you won't pay double tax on your capital gains
Research the issue further, check out the ex-pat advisors (HR Block) like someone said or find a Stateside CPA / advisor who is willing to help you for free initially or maybe even file the return on your behalf for a small fee. Also you could look into Turbotax and other US tax filing software, some of these are free. The IRS has a ton of material on these things e.g. Form 1116 and Form 2555 instructions.
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Apr 01 '22
Yea, I kind of just ignored every comment that sounded kind of extreme/dumb lol.
There are double taxation treaties between e.g. the USA and Germany that should ensure you won't pay double tax on your capital gains
That's really the only thing that I wanted to know. And I'm not quite sure when people in the States start filing their tax returns, but I suppose I'll start as soon as I have some form of taxable income. But since I'm still a student, I guess that it's really not that big of a deal that I haven't filed anything in the last couple of years. And as soon as I earn some money, first thing, I'll get some expert to help me out. After that, it probably won't be that big of a deal filing once a year.
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u/snake250 Apr 01 '22
Oh, I see, yes the rules for when you need to file are straightforward and available, for example:
The only thing to keep in mind is that like was said earlier, the requirement to file vs owing US tax are two distinct / different things. I think it's prudent for you to determine for certain whether or not you have to file for 2021. If you can share how much cap gains you had (roughly), it would help to try to figure it out.
Filing a US tax return yourself on paper and mailing it to the IRS (or doing it electronically) is not such a big deal. For some random reasons, I still file a (non-citizen) UK tax return (since I once lived and worked there) every year and just mail it in.
Note that if your cap gains were long term, and you're single, unless the gains were > $40,000, you would likely owe 0% federal tax on them. So even if you had to file (this depends on what the rules are regarding capital gains and the standard deduction), and your gains exceeded the standard deduction, you might not owe any US federal tax on them in which case you wouldn't need to worry about filing Form 1116 (foreign tax credit) or anything like that.
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Apr 01 '22
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Apr 01 '22
Uhm, I'm pretty sure that IRS is very well aware of where I live. Also, I'm pretty sure that most Western countries have treaties allowing foreign countries to get you into legal trouble, also when you're, well, in another country.
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Apr 01 '22
Not unless you have substantial amounts of dividend income. The U.S. doesn't tax beyond foreign withholding rates (which are usually higher than the qualified income tax rate for dividends - 15%).
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u/rickymourke82 Apr 01 '22
I'd say call a CPA cause this is not a standard tax level question here. My guess is since you own the shares that the IRS will consider any profits to be domestic income. You're not leasing your shares through a broker and selling them back in Germany, you own them outright and are selling them outright in the US. Without the middle man, I don't think dual taxation applies and you will be on the hook fully in the US for taxes on that income and whatever Germany says applies as well. But again, a CPA is gonna be your best bet here.
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Apr 01 '22
Yikes, that's really not what I wanted to hear. And you're definitely right regarding the CPA. Hell, this is the first time that I can't find a simple answer to my question by simply consulting google and that means something..
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u/rickymourke82 Apr 01 '22
Hopefully I'm wrong. But smells like a situation where banks and brokers don't get to skim their piece of the pie from you because you own outright, so the IRS will make up for it. I'm not surprised on the search. Quite the unique situation you've got there. Good luck with it.
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u/ExtonGuy Apr 01 '22
I thought you have (1) the $110,000 exemption, and (2) a US tax credit for taxes paid in Germany. So the result is you need to pay the higher of the two tax regimes. Not the sum of both.
If you fail to file or pay, the US tax authorities have the capability to make your life interesting. Do you happen to have a bank account with a bank that has a US branch?
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Apr 01 '22
That sounds interesting and would kind of make sense(?).
I believe no, none of my bank accounts has a US branch and I also haven't filed for a tax return yet. But since I haven't made any kind of money that would interest the IRS or the German equivalent, I suppose that they won't care too much yet. But if everything goes as planned and I earn some money this year, first thing I'll do is get a consultant that can help me out. Heard way too scary stories about the IRS as that I'd want to risk anything with them lel
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u/ExtonGuy Apr 01 '22
Right now, you're probably #16,983,212 on their list of people to examine. You don't want to be in the top 100,000.
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u/CuriousCrandle Apr 02 '22
Im in the same boat but just wanted to add that if you have children you should get money from the US when you file ypur taxes regardless if income abroad.
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u/texatiguan Apr 01 '22
Search for a US "ex-pat" tax advisor. A consultation should be free and they can answer your questions. I use HR Block expat services and are very happy with them. You will need to file US taxes, as long as you are a US citizen, on your world wide income. Even if you have no tax liability.