Return to India - Financial Guide

Scenarios

- Planning to return to India 

- Keeping US accounts as a non-resident alient

What are the implications of moving on brokerage accounts ? 

• Allow reasonable access, under non-resident alien terms (with a W-8BEN). There may be some restrictions on the type of thing you can trade, and you may have to send paper forms in for some things that could otherwise be done online, but overall the account functions relatively well. Buy and sell, and things like 401ks, IRA rollovers and Roth conversions are still available.

• Limit activity as noted upthread. That is, you can sell existing holdings on your own schedule but not buy any new ones. Over time, that makes the account hard to manage (rebalancing, for example).

• Force you to close your account and move your money out.

Which occurs seems to to depend heavily on which country you move to, its tax treaty status and regulatory framework, and so on.

What are the tax implications ? 

It depends which country you live in. If it has an income tax treaty with the US, you will pay US tax on dividends at the treaty rate. It's typically 15%, but could be higher, perhaps 25%. A few countries have a 10% rate. If it has no income tax treaty, you will pay 30% in US tax on dividends. Vanguard will take the correct rate automatically through withholding once you've sent them a W-8BEN. It's a flat rate tax, so you cannot recover any of it from the IRS. You might however be able to use it as a credit against local income tax on these dividends.

No US capital gains tax implications. The US does not tax capital gains for nonresident aliens. Watch out though for US estate tax. If you country lacks a US estate tax treaty, your heirs could face 26%-40% of the balance of your holdings above $60,000 should the worst happen. This applies also to any IRA or 401k accounts you hold in the US. The US estate tax treaties with Ireland and South Africa are reportedly deficient, so best not to rely on those.

What about tax returns ? 

If you're neither a US citizen (or resident) or a green card holder, if you have to file anything it's always a nonresident alien return, so a 1040-NR.

In general though, you should have no need to file one. Provided Vanguard applies the correct US tax withholding on dividends, your US tax liability will exactly match your US tax withholding, and in that case you don't need to send any US tax return. See 1040-NR instructions for more.

If for any reason you do have to file a 1040-NR, perhaps Vanguard overwithheld relative to your treaty rate, you'd only have to declare your US source income on that. You don't tell the IRS anything about your non-US earnings, interest, or anything else financial happening in your (non-US) country of residence on that form. 

The IRS will only issue tax refunds in USD, either as a cheque or ACH payment to a US bank account.

Some tips

1. Remittance from brokerage accounts to directly foreign accounts through transferwise if possible. I am not sure this works. Seems like a hassle. 

2. Interactive Brokers seems to have a global presence

3. 

Appendix Links

1. United states income tax treaties 

2. India tax treaty documents 

3. US Estate and Gift tax treaties

4. Interaction of Indian and US tax laws

5. Keeping vanguard accounts as a non-resident alien

6. Bogglehead link on non-residen alien taxation

7. Beware the taxation angle if you want to invest in direct foreign equities from India - Reddit thread

8. Taxation for international residents

9. Non-US investors guide to navigating US tax traps

10. A guide to selling US property for foreign residents and expats