Year of expatriation tax return (1040NR)
 

Hello All (again). I'm back looking for some more help, this time specifically with form 1040NR for my split year return (for the year ending 12/31/2018). Just to recap, I filed I-407 in February last year and thanks to the help from the experts here, I have forms 8854 and 1040 ready to go and now need some help with line 1b on SCHEDULE NEC (1040NR) "Dividends paid by foreign corporations". I have a US brokerage account with shares in stocks that are Sponsored American Depositary Receipts (ADRs) and I received dividends from these in 2018 after filing I-407 and notifying the brokerage via W8-BEN of my change in status. I understand the brokerage does not apply a withholding tax to these dividends since the change in my status but I am unsure as to how I should include these on SCHEDULE NEC (1040NR). My assumption is that, since the dividends are effectively paid by foreign companies, they are nolonger subject to the US dividend tax since I'm a nonresident alien and I would therefore enter the total dividend amount in column "(d) Other (specify)", for line 1b and apply 0% tax rate. (the "foreign companies" do not withhold any tax for their tax jurisdiction either.)

I'd be very grateful if anyone could give me an indication as to whether making the foreign dividend declaration as above is correct. Would also appreciate some help on what I need to "specify", as stated in column "(d)" and where?

Thanks in advance.

Z.S.

Re: Year of expatriation tax return (1040NR)
 

The rate of tax payable on US dividends paid to NRAs is either 30% or 15% if you qualify under a treaty. It is never 0%.

Re: Year of expatriation tax return (1040NR)
 

Thanks very much for the reply Cook_County. I wonder if you could provide some further clarification as to whether dividends from "ADR" shares are considered "US dividends"?

The information I have (from Investopedia) says "non-resident aliens face a dividend tax rate of 30% on dividends paid out by U.S. companies. However, they are excluded from this tax if the dividends are paid by foreign companies". The guide to "Taxation for Foreign Investors" published by Citigroup says "dividends on ADRs are treated as foreign source income"

Would appreciate your thoughts.

Many thanks.

Z.S.