Renting To Foreigners Tax Question

[sergio]

An Argentine friend has a question about US taxes. He lives in Argentina but he advertises on a US website that advertises short term rentals in Argentina. The company has offered a plan where they charge a commission for each rental. The rent is paid in advance and deposited to the advertiser's bank account minus 10%.

If he uses this plan, does he have to pay tax to the IRS (and also in Argentina)?

 

[steveinbsas]

An Argentine friend has a question about US taxes. He lives in Argentina but he advertises on a US website that advertises short term rentals in Argentina. The company has offered a plan where they charge a commission for each rental. The rent is paid in advance and deposited to the advertiser's bank account minus 10%.

If he uses this plan, does he have to pay tax to the IRS (and also in Argentina)?

The rental income would be subject to taxation in Argentina, sin duda, but I hope he would'nt have to pay tax on the rental income in the USA if the money is deposited into a bank account in Argentina unless he is also a US resident and has a Social Security number.

It would be helpful to know if the rental company will file an IRS form 1099 (in his name) for the rental income. I believe he would need a US Social Security number for that...and also would need a Social Security number to open a US bank account.

If the rent is being sent to an Argentine bank account using XOOM or RIA and the rental company is not reporting the "income" to the IRS, he won't need a US Social Security number or a US bank account and he should not have to worry about the IRS or file a tax return with them. If the company is reporting the income to the IRS he will probably have to find a way to file (depending on the total received annually).

 

[nkotb]

The rental income will probably be deemed US-source income subject to US tax. The advertiser will likely withhold 30% of rent under IRS regulations. I don't know anything about Argentinian taxes.

 

[steveinbsas]

The rental income will probably be deemed US-source income subject to US tax. The advertiser will likely withhold 30% of rent under IRS regulations. I don't know anything about Argentinian taxes.

That would certainly be a deal killer, but if the rent is paid in the USA I can see how it would be "deemed US-source" income.

I think the rental company is the one who's you know what would be on the line if they don't withhold an appropriate amount of the rent.

It would be interesting to know exactly how income "earned" by a non-resident foreigner (without a Social Security number) can be reported in the USA.

 

[sergio]

He doesn't have a social sec number. You don't need one to open a bank account in the US. The rent payments would go into a US bank account. Is he liable for taxes in the US?

 

[steveinbsas]

He doesn't have a social sec number. You don't need one to open a bank account in the US. The rent payments would go into a US bank account. Is he liable for taxes in the US?

I didn't refer to a bank account in my previous post. I thought it would be "interesting to know how a non-resident foreigner (without a Social Security number)" could report the income in the US.

I found the answer in a few seconds by entering "do foreigners receiving rent in usa on foreign property owe taxes" in a google search.

According to the following, the rental agency is REQUIRED to withhold 30% and THEY are also RESPONSIBLE to pay the tax to the IRS.

Passive Income
Unlike trade or business income, U.S. source passive income is taxed on a gross basis at a flat tax rate of 30%. “Gross basis” means that no deductions or exemptions are allowed against this income. For purposes of this discussion, the most typical types of income which fall into the “Passive Income” category are interest,dividends, royalty, rents, alimony, certain capital gains, and 85% of U.S. social security benefits

The flat tax of 30% is usually collected through a withholding mechanism with the burden to withhold placed upon the payor of the income.
For example, a U.S. corporation is generally required to withhold the 30% tax from any dividends it pays to nonresident taxpayers, and remit this withholding to the U.S. government on behalf of the individual.

If you are a nonresident taxpayer and your only U.S. source income consists of passive income, you are not required to file a U.S. tax return.

The withholding tax generally satisfies any U.S. tax liability.

Source: http://www.gtn.com/U...als.pdf (pages 29 and 30)

 

[Jaredberryman]

If you are not a U.S. citizen, or permanent resident, you do not have to file a tax return or report taxes. You can store your money in a U.S. bank and just because you do that, you do not have to pay taxes. My partner is Argentine and we have an LLC; he does not have to pay any tax on our business on his half. I highly doubt he would have to pay anything.

 

[steveinbsas]

If you are not a U.S. citizen, or permanent resident, you do not have to file a tax return or report taxes. You can store your money in a U.S. bank and just because you do that, you do not have to pay taxes. My partner is Argentine and we have an LLC; he does not have to pay any tax on our business on his half. I highly doubt he would have to pay anything.

I wonder if the "pass through "rule" of an LLC (limited liability company) to avoid double taxation in two countries actually applies in this case, as the rental agency and the apartment owner are not parties to an LLC.

Hopefully, just by acting as a "collection agency" the rental agent does not have to withhold 30% of rental income received in the USA (especially as the rental property is not IN the USA.) If they do it would probably kill their business. If they don't and later it is "revealed" that they owe the IRS the uncollected 30% it will undoubtedly kill their business.

If the rental agency does not withhold 30% (and deposits the 90%) it doesn't look like the property owner is the one who would have to pay it if the IRS ever demands it. Then again, funds in any US bank account are never out of reach of the long arm of the IRS, and if the rental is ever deemed taxable in the USA, the funds in the bank account would be an easy target.

The answer to the question "Does he have to pay tax....(on the income for the rented property) in Argentina?" is yes, but if the rental income is being deposited into a US bank account, what are the chances it will actually be declared in Argentina?

 

[sergio]

Thanks. Looks as though he cannot rent through an agent in the US.

 

[Jaredberryman]

Sergio, I would ask an accountant. I really doubt that is true. The USA does not care about the taxes of non-citizens and non-residents at all really. Even if you evade taxes in Argentina, they consider that Argentina's problems. You might want to ask an accountant: [email protected].