Do you own American stocks? Then you should definitely beware. You may be surprised.
Most people like US stocks. Of course, investing carries some risks. But there's one thing that few people tell you about that can have a significant impact on your wealth. What is it? How do you prevent it, and how do you protect yourself? Find out below.
One of the most well-known concepts is the so-called double tax treaty, which protects investors from having to tax their investment income more than once. But here it is very important to understand what all is covered by this treaty. Most investors are under the impression that this treaty protects them in all respects. They are partly right, because the Czech-US double taxation treaty covers investment income, but only for the lifetime of the investor. This means that if you are building a portfolio that you want to one day leave to your descendants, they may have a problem in the future.
Progressive tax
The Czech Republic has a double tax treaty with the US, but this only applies to income tax, not inheritance or gift tax.
Olivia Cooper, a specialist in international law and tax context, confirmed. The tax thus affects any Czech resident or resident of any country that does not have a double tax treaty with the US. This means that any citizen in the event of inheritance or gift of property located in the US will be subject to this tax. As I wrote above. The double taxation treaty in this case only applies to income taxes during lifetime. In the case of Czech investors, this tax just applies to inheritance or gifting.
This can be very confusing because each tax treaty, even though entered into by the same country, can have different qualifying clauses. Therefore, never assume that if an exemption is available in one U.S. tax treaty, it will be available in all of those treaties.
Thus, this Tax applies to all assets owned by the decedent at the date of death. The imaginary icing on the cake to all this is that the tax is usually not paid on the original value of the assets, or what the testator paid for them, but on the current fair value.
https://www.youtube.com/watch?v=ZlJ2gnFd8Io
Bottom line. If you want to transfer any property after your death or by gift, whether it is stock or real estate, that is in America, you will have to accept that that property will be taxed at a progressive tax. This tax can be as high as 40%. Only assets up to $60,000 are exempt from tax.
How to avoid this?
I have found some information and tips online that can help you avoid this tax. One tip was to hold your investments using trusts or holding companies.
Invested assets are not subject to probate and therefore in many situations, such as the death of a person, there is no transfer of assets in probate and no tax event to generate a tax liability. This legal form of holding and investing in US tax domiciled assets has its own specifics, such as accounting obligations, revaluation or the absence of a tax test, but it also has a number of positives that must always be evaluated depending on the type and size of the assets invested.
The short and simple fact is that the person holds their investments through holdings or trusts that are in the Czech Republic. Thus, upon the death of the owner, the owner of the U.S. stock remains the same, only the owner of the holding or trust changes. Thus, there is no obligation to pay this tax.
Taking into account the time and quantity test, it seems to me that the best option for an investor is to deal with this situation early and sell the portfolio and transfer the funds directly to his or her descendants.
However, if you have assets that are worth less than $60,000, then those assets are exempt and you don't have to deal with that.
WARNING: I am not a financial advisor, and this material does not serve as a financial or investment recommendation. The content of this material is purely informational.
