How do taxes work for Brokers outside my country?

Hi everyone!

I have this question on my head for a while:
I live in Europe and i want to open an account in a US broker do i have to I have to pay taxes to the US? Or do I just have to pay taxes in my country?

I’ve sent an e-mail to a US broker asking this question, they were very polite but their answer was that they can’t provide tax advice. Can someone help me figure this out?

Thanks in advance.

No aswers? :frowning:

Please help me out i really want to know about this at least tell me where i can find more information on the subject.

Hello.

Well in my experience and to the best of my knowledge your tax problems and issues are your own. In other words: you trade, you profit, you withdraw, you don’t declare your profit to the IRS (or in our case SARS), it’s your problem if they find out. It’s pretty much that simple.

HOWEVER: I’m currently in the process of getting a lot more detail on this (unfortunately I’m not getting speedy responses on this though). I have a lot of questions in this regard myself. For example (and assuming that you’re registered as a business and not a private individual): I know you have to declare your profit (income) BUT what about losses??? To the best of my knowledge right NOW (and this is why I’m trying to get some reliable information on the subject) a PRIVATE trader would be registered with SARS as a ‘professional gambler’ (and NO I don’t want to start that debate here). As a matter of fact: our revenue service has just upped the tax rate on professional gamblers. One thing that’s NOT clear though: if you MAKE money gambling you pay tax. But what about losses??? At the moment it would appear as though losses are not claimable which to me seems to be pretty much one-sided not so???

I’m sorry I cannot be more specific at this time but I’m working on it as this issue was raised last week or the week before on a BabyPips related blog.

But yes: I’m talking purely about South Africa here. What about all of you in the UK for example??? It appears to be one of those ‘taboo’ subjects that’s very quitely avoided by everyone but sooner or later it’s going to ‘catch you in the tail’ (assuming you’re making money of course). So what are others doing??? Don’t worry: I’m sure that the taxman in the UK and other places has more important things to do than try to track your IP address!!! LOL!!! (Then again it wouldn’t surprise me i.e. the MOST, possibly the ONLY, efficient Government Department over here is INDEED the revenue service)!!! LOL!!! Go figure!!!

Regards,

Dale.

Thanks for the answer personaly i think you have to declare only your profits if you didn’t make money you don’t have nothing to declare but again i don’t know anything about this, i asked to a college teacher about this and he said “don’t worry about taxes, forex its like gambling you don’t declare your gambling gains”, i wasn’t very happy with the aswer.
Anyway i only wanted to know if i have a have an account outside my country if i have to pay taxes to that country or just the one i live in.

I’m surprised that i only got one reply how does everyone else here deal with taxes in forex (if you deal with them at all)?I know taxes are my problem and im ok with that
i’m not trying to evade taxes i want to pay them thats why im asking :frowning:

Hello,

Well up until two weeks ago your college teacher was right about what happens in South Africa anyway. But two weeks ago it was announced that any private individual that winds R25 000 and over will have tax deducted from the amount by the casino (at least that’s the impression that was given i.e. I was half listening to the Minister of Finance’s Budget Speech). The tax rate on somebody that is registered as a Professional Gambler was also upped. Whether or not this applies to wherever your are resident I know not. In my opinon it sucks to be honest and it’s pretty much one-sided is it not.

But as far as tax being deducted by the broker in a country other than where you reside: of this I’m not aware of. In my experience nothing is deducted at all (well other than any fees for bank wire transfers and the like).

Regards,

Dale.

I don’t know what country you’re living in but if you’re trading forex you probably have to pay capital gains tax on profits and you could probably declare any losses tax deductible. In UK & Ireland you can spreadbet tax free which is more or less the same as forex. In Ireland I think there’s a threshold you have to breach to pay capital gains - I think I would have to earn about €5,200 p.a. or something before I’d be liable for capital gains. You can most likely find the same information for your country online somewhere.

So, if you’re starting off with a small account you probably won’t have to worry about tax for a while (if you’re lucky) or for a very long while (if you’re not so lucky). Check with your local Revenue or some accountant you know to make sure.

Thanks for the aswer yea i have a really, really small account so ill do as you sugested and ask around to know more i am taking an accountant course in college after all :stuck_out_tongue:

But what i really wanted to know is if i have to pay taxes to the country where my borker is, Im with avafx they are in Ireland do i have to pay taxes to Ireland? And if i open an account in the US do I have to pay taxes to the US? Who or where do i look for to get more information?

Again thanks for the aswer :slight_smile:

Hi,

Well there’s an easy way to find out the exact anwer to your particular question and that would be to ask the brokers themselves. All I know is that I’ve traded with a few brokers in my time (well a few during my first few months of trading that is) and I’ve never had anything other than usual fees (for bank wire transfers or whatever fee one or two of the ‘scam bucket shop’ brokers decided to charge at the time) deducted. Logically speaking too it would be nonsensical (and being an accountant myself although qualifying a VERY long time ago and therefore am not ‘up to speed’ on tax law now) i.e. unless you’re a registered tax payer in the country in which your broker is situated how is that tax going to be allocated by the tax authority in that country??? On the other hand: I do know that in certain instances and country dependant a broker will deduct a fixed percentage of tax on COMMISSIONS earned by their Introducing Brokers. But that’s different from trading profits made.

Regards,

Dale.

Thanks Dale!

I did asked the broker they said they don’t give tax advices and didn’t aswer the question.

You aswered my question so i only have to worry about taxes in my country :slight_smile:

Thanks again!

Hi,

Well ‘hot off the press’ as they say:

I was just given a short spot on one of our national radio stations here in South Africa. They have a two hour business program every weeknight. They put me in touch with a senior manager at our South African revenue service and, to my surprise, this business, insofar as our revenue service is concerned, is no different from any other business i.e. trading losses are claimable in the same way that trading profits are to be declared. However: such losses are not claimable ad infinitum. The comment made was that if you’re incurring continual, consecutive, losses and have not shown an income or (trading) profit for between three and five consecutive years then the situation would be reviewed. Logically then (given that online trading in this country is not considered gambling or the equivalent to spread betting as would be the case in the UK for example) it follows that all expenses incurred in the production of your income or (trading) profits would also be claimable against your income or (trading) profits e.g. IT costs, telephone, ADSL (Internet), rent, and so on and so forth. So there you have it South Africans!!! ‘Straight from the horses mouth’ as they say.

Regards,

Dale.

You pay taxes in your country of residence. The US and most European Countries have reciprocal tax treaties. I don’t know about your country, but the IRS in the US is aggressive (to say the least). In the event of an audit, the taxing authority doesn’t need documentation from your broker about your P&L - in the US at least, income can be attributed. This means that the IRS can ‘assume’ you made a certain amount by looking at your bank records, assets, etc. The burden then shifts to you to prove otherwise.

The US has no jurisdiction for income or capital gains for foreign residents living in foreign countries. Your broker’s situs is relevant only to the extent that local law governs its activities (equity, business practices, liability, etc). Income tax has no relationship whatsoever to your broker (except for documenting your profits and losses). You can make money on forex, Nasdaq, selling popsicles, selling pantyhose on Ebay. Neither your broker nor Ebay know or care what you do with your money once you receive it.

Tell me if i understood correctly what you said. So because the US has no jurisdiction for income or capital gains for foreign residents living in foreign countries i only have to pay taxes to my country (Portugal). Is this correct?

Thanks for the reply!

Yup that’s correct. You will only have to pay Portuguese taxes. Most of these wouldn’t kick in until you start to earn a reasonable amount in forex per year so probably not something you’ll have to worry about for a little while.