Individual Taxpayer Identification Number (ITIN)

An Individual Taxpayer Identification Number (ITIN) is a tax processing number issued by the U.S. Internal Revenue Service (IRS). Think of it as a special key to the U.S. tax system for those who aren't eligible to get a Social Security Number (SSN). This includes certain non-resident and resident aliens, their spouses, and dependents. For international investors, the ITIN is a crucial tool. If you're a European investor who owns U.S. stocks and receives dividends, your broker likely withholds a flat 30% tax. However, a tax treaty between your country and the U.S. might entitle you to a much lower rate, say 15%. To claim a refund for that overpayment, you must file a U.S. tax return, and to do that, you need an ITIN. It's purely for tax administration; an ITIN does not authorize you to work in the U.S. or grant you Social Security benefits.

For a global investor, understanding the ITIN isn't just about paperwork; it's about protecting your returns. Overlooking it is like willingly giving away part of your hard-earned investment profits.

The most common reason for an international investor to get an ITIN is to take advantage of tax treaties. The U.S. imposes a default 30% withholding tax on dividends paid to foreign investors. If your home country has a treaty with the U.S., this rate could be slashed to 15%, 10%, or even 0%. While you can often claim this benefit upfront by submitting a Form W-8BEN to your broker, mistakes happen, or circumstances change. If too much tax is withheld, your only path to a refund is by filing a U.S. tax return (Form 1040-NR). No ITIN, no tax return, no refund. It's that simple.

If you invest directly in U.S. property, the ITIN becomes even more critical. Under the Foreign Investment in Real Property Tax Act (FIRPTA), when you sell U.S. real estate, the buyer is generally required to withhold 15% of the gross sales price. To report the sale correctly, calculate your actual capital gain, and claim a refund if the withholding was excessive, you will need an ITIN.

Getting an ITIN involves a bit of administrative legwork, but it's a straightforward process.

• Application: You apply for an ITIN by filing Form W-7, “Application for IRS Individual Taxpayer Identification Number.”
• Timing: Typically, you submit your W-7 along with your very first federal income tax return. You can't just apply for one out of the blue; it must be attached to a legitimate tax filing.
• Proof: You must provide original or certified copies of documents that prove your foreign status and identity. A valid foreign passport is the most common document used.
• Expiration: Be aware that ITINs can expire if they aren't used on a U.S. tax return for three consecutive years.

It's easy to confuse an ITIN with a Social Security Number (SSN), but they serve very different purposes.

• Purpose: An ITIN is Boldexclusively for federal tax reporting. An SSN is used to track U.S. citizens' and eligible residents' earnings for Social Security benefits and is widely used as a general identification number. * Eligibility: You get an ITIN Boldprecisely because you are not eligible for an SSN.
• Benefits: An ITIN confers Boldno work authorization and Boldno eligibility for Social Security benefits.

A true value investor is obsessed with maximizing long-term, after-tax returns. They understand that small leaks can sink a great ship. Unclaimed tax refunds are a significant leak. Value investing isn't just about finding undervalued companies; it's about being a disciplined and intelligent business owner. That includes managing the administrative and tax aspects of your portfolio efficiently. Knowing how and when to use an ITIN allows you to invest in world-class U.S. companies without needlessly forfeiting a chunk of your returns to the tax authorities. It empowers you to build your global portfolio on a level playing field, ensuring your compounding machine works as efficiently as possible.