Investments In US Securities

When nonresident aliens ("NRAs")¹ invest in the US securities market they must take the bitter with the sweet. On the sweet side, the US entices NRAs by offering quite favorable income taxation on US securities: no income tax on US capital gains, income tax-free "portfolio" interest paid from US sources, and US dividend tax rates reduced from 30% to special rates as low as 5% (depending on country specific treaty provisions). The bitter side is that if an investment in US securities is not structured properly the US estate tax can take a 40% tax bite out of the fair market value of the NRA's investment in US securities at time of death and create an administrative nightmare for transferring those assets to their rightful beneficiaries and heirs.²