One Big Beautiful Bill - Section 899 - Increased US Taxes on Foreigners Investing in US

[Martin Everson]

Summary​

• Proposed Section 899 would significantly increase U.S. federal income tax rates—by 5% to 20%—on certain types of income earned by non-U.S. individuals and entities that are tax residents of, or are established or effectively managed in, “discriminatory foreign countries.” These jurisdictions are defined as those that impose an “unfair foreign tax” under the proposed legislation.
• These elevated rates would apply to passive U.S. source income (such as dividends, interest, royalties, and rents), as well as income effectively connected with a U.S. trade or business (ECI).
• The legislation defines “unfair foreign taxes” broadly, encompassing digital services taxes and other measures that have been widely adopted by foreign jurisdictions. As a result, a large number of non-U.S. individuals and entities could fall within the scope of the increased tax rates.
• These higher rates would apply across a broad spectrum of existing tax provisions and would affect nonresident individuals, foreign corporations, and even sovereign entities.
• If enacted, Section 899 would introduce substantial economic and compliance challenges, particularly for foreign governments, multinational enterprises, and investors with connections to jurisdictions that impose taxes perceived to disproportionately impact U.S. interests—such as digital services taxes or global minimum tax regimes.
• Taxpayers potentially impacted by this proposal should carefully assess how their U.S. tax exposure could change under the new rules and evaluate possible strategies to mitigate adverse effects.

​

How would tax treaties affect the application of proposed Section 899?​

If a different U.S. tax rate applies to a nonresident under existing law—such as a reduced or zero rate provided by an applicable income tax treaty—that rate would serve as the starting point for the rate increases under proposed Section 899.

For example, if interest or royalty payments from a U.S. corporation to a non-U.S. affiliate are currently exempt from U.S. withholding tax under a treaty, the applicable rate under Section 899 would begin at 5% in the first year, increasing incrementally thereafter.

By applying increased rates on top of treaty-based rates, the proposed legislation effectively overrides certain U.S. tax treaty obligations—a significant departure from longstanding treaty commitments.

Obscure Tax Item in Trump’s Big Bill Alarms Wall Street​

​

https://www.msn.com/en-us/money/mar...ump-s-big-bill-alarms-wall-street/ar-AA1FJCAV


"The item , introduced in legislation that passed the House last week as Section 899 and titled “Enforcement of Remedies Against Unfair Foreign Taxes” , calls for, among other things, increasing tax rates for individuals and companies from countries whose tax policies the US deems “discriminatory.” This includes raising tax rates on passive income, such as interest and dividends, earned by investors who are potentially sitting on trillions in American assets."

Reporting Obligations for Foreign-Owned U.S. Corporations With Form 5472​

https://www.forbes.com/sites/priyar...g-beautiful-bill-challenges-global-investors/

One Big Beautiful Bill Act​

https://www.congress.gov/bill/119th-congress/house-bill/1/text


P.S Time for those holding US assets to dump them if this bill passes as is?

 

[lavel]

P.S Time for those holding US assets to dump them if this bill passes as is?

where would you move them ?

 

[void]

where would you move them ?

don't know how about @Martin Everson but I'd move them somewhere where nobody can reach...

 

[AlicaFunk]

don't know how about @Martin Everson but I'd move them somewhere where nobody can reach...

where?

 

[intlman]

It looks like even using a SMLLC won't protect you from this, if you reside and/or are tax resident in a "discriminatory foreign country".

 

[Martin Everson]

where would you move them ?

I don't own any stocks or even hold a USD account. I would especially not buy any US stocks if I was in the market to invest in equities.

 

[Martin Everson]

Chances are some countries will be facing up to a 50% tax on certain types of US income. The 5% initially then going up to 20% in 4 years is not the only issue if the bill passes as is. There is a very high chance that Trump may start terminating Double Tax Agreements (DTA) with certain countries overnight due to "unfair tax practices". The US already did this to Hungary in 2022 below:

https://www.pwc.com/us/en/services/...-to-terminate-the-ushu-income-tax-treaty.html

"The US Treasury Department took the rare step on July 8 of providing notice to Hungary that it is terminating the US-Hungary income tax treaty, which has been in operation since 1979. According to a July 8 article in the Wall Street Journal, Treasury explained its action based on long-standing concerns with Hungary’s tax system and the treaty itself, and a lack of satisfactory action by Hungary to remedy these concerns in coordination with other EU member countries that are seeking to implement the OECD Pillar Two global minimum tax proposal. The treaty termination will apply to US-source dividends, interest, and royalties for payments made on or after January 1, 2024."


What does this mean for an investor who holds US dividend stocks for example. Well in 4 years you may face the 20% tax on dividend income (as per Section 899) plus an additional 30% default withholding tax if the DTA with your country is cancelled as in the case like Hungary. Meaning you face a total of up to a 50% (20% + 30%) tax on your dividend income .

You can be sure the EU and any country with a trade surplus will fall under Section 899 plus every developing country. Bottom line is stay out of US market, hope this does not pass or is amended as this is just a tool to blackmail other countries, sabotage their US investments etc and possibly market manipulation by Trump's circle.