Withholding on dividends is the US tax most investors abroad notice, because it shows up on every statement. The estate tax is the one they discover late, usually when a family member dies and a US broker freezes the account. It applies to people who were never US citizens and never lived in the United States, it starts at a level far below the allowance Americans get, and it is settled with forms and certificates that can take more than a year. This guide covers who owes it, which holdings count, how the bill is worked out on a $500,000 portfolio, which treaties change the result and what an executor has to do. For the wider picture of owning US assets from another country, see the guide to investing in the US from abroad.
Who owes US estate tax as a nonresident?
A nonresident who is not a US citizen leaves an estate taxed on US-situated property, and a return is due above $60,000 of US-situated assets.
For estate tax, the test is domicile at death, meaning the country a person lived in with no intention of leaving, rather than the residence tests used for income tax. US citizens are taxed on their worldwide estate wherever they live, and so are non-citizens domiciled in the US. Everyone else falls into the category the IRS calls nonresidents not citizens, whose estates are taxed only on property located in the United States.
The catch is the size of the allowance. The estate of a US citizen or resident can pass $15,000,000 per person free of estate tax. A nonresident's estate gets a credit of $13,000, which offsets the tax on the first $60,000 of US assets, and neither figure for nonresidents has moved with inflation. A nonresident's executor also cannot make the portability election, which passes a deceased spouse's unused exclusion to the survivor. The tax itself runs on the same unified rate schedule that US estates use:
| Taxable amount over | Not over | Tax on the lower amount | Rate on the excess |
|---|---|---|---|
| $0 | $10,000 | $0 | 18% |
| $10,000 | $20,000 | $1,800 | 20% |
| $20,000 | $40,000 | $3,800 | 22% |
| $40,000 | $60,000 | $8,200 | 24% |
| $60,000 | $80,000 | $13,000 | 26% |
| $80,000 | $100,000 | $18,200 | 28% |
| $100,000 | $150,000 | $23,800 | 30% |
| $150,000 | $250,000 | $38,800 | 32% |
| $250,000 | $500,000 | $70,800 | 34% |
| $500,000 | $750,000 | $155,800 | 37% |
| $750,000 | $1,000,000 | $248,300 | 39% |
| $1,000,000 | No limit | $345,800 | 40% |
Because the credit equals the tax on the first $60,000, every dollar of taxable US property above that level is taxed from 26% upward.
Which assets count as US-situs property?
US-situs property means assets the US treats as located there: mainly US real estate, goods physically in the US, and shares of US companies wherever they are held.
The rules are specific, and the location of the account does not decide anything. A share of a US corporation is US property even if the certificate sits in a vault abroad or the position is held through a local bank. The deciding question is who issued the asset and what kind of asset it is.
| Asset | Counts for US estate tax? |
|---|---|
| Shares of US companies, wherever the account is held | Yes |
| US-domiciled ETFs and mutual funds, including bond and money market funds | Yes |
| US real estate and goods physically located in the US | Yes, except art on loan for public exhibition |
| Debts owed by US persons that do not pay portfolio interest | Generally yes |
| Shares of non-US companies, including Irish-domiciled ETFs | No |
| Treasury notes and bonds, and other registered bonds paying portfolio interest | No |
| Treasury bills and certain other short-term discount obligations | No |
| Deposits with US banks, savings institutions and insurers, not tied to a US business | No |
| Life insurance proceeds on the decedent's own life | No |
Two rows trip people up. US-domiciled bond and money market funds count in full, even though the Treasuries inside them would be exempt if held directly; the Form 706-NA instructions describe a partial carve-out for fund shares only for deaths from 2005 through 2011. Uninvested cash is less clear-cut: a balance swept into deposits at a US bank falls under the deposit rule, while cash left with the broker is a claim on a US company, so it is worth asking the firm how it holds client cash. Cash sweep accounts explained covers how those programs work. The comparison of US and Irish-domiciled ETFs looks at the fund question in more detail, and can foreigners buy US Treasury bills? covers holding bills directly.
How much is US estate tax on a nonresident's estate?
Work out the taxable US estate, apply the rate table and subtract the $13,000 credit; with no treaty, $500,000 of US shares owes $142,800 before deductions.
The calculation on Form 706-NA runs in four steps. First, value every US-situs asset at the date of death; listed shares use the mean of the day's highest and lowest trading prices. Second, deduct a share of funeral costs, administration expenses, debts and mortgages, but only the share matching the US portion of the worldwide estate, and only if the executor documents the assets outside the US with a certified copy of the foreign death tax return or estate inventory. Third, apply the rate table to the result. Fourth, subtract the credit.
Worked example: A $500,000 US portfolio with no treaty
Nadia lives in Dubai and dies with a worldwide estate of $2,000,000, of which $500,000 is US shares and US-listed ETFs. The UAE has no estate tax treaty with the US. Her estate's worldwide funeral costs, debts and expenses come to $100,000.
- US share of the worldwide estate: $500,000 ÷ $2,000,000 = 25%
- Deduction allowed: 25% of $100,000 = $25,000
- Taxable US estate: $475,000
- Tentative tax: $70,800 + 34% of $225,000 = $147,300
- Less the nonresident credit: $13,000
- US estate tax: $134,300, about 27% of the US holdings
Without the documents proving the worldwide estate, the deduction disappears and the tax rises to $142,800.
The same investor could have owned the same mix of markets and paid far less, simply by changing which wrappers held it.
Worked example: The same $500,000, held differently
Suppose Nadia's $500,000 had been split four ways: $200,000 in US shares and US-listed ETFs, $150,000 in Irish-domiciled ETFs, $100,000 in Treasury notes and $50,000 in a deposit at a US bank. Only the first $200,000 is US-situs.
- Deduction allowed: 10% of $100,000 = $10,000
- Taxable US estate: $190,000
- Tentative tax: $38,800 + 32% of $40,000 = $51,600
- Less the nonresident credit: $13,000
- US estate tax: $38,600, which is $95,700 less than before
The second structure still needs a Form 706-NA, because $200,000 is above the threshold, and fund choices bring their own trade-offs in costs and withholding. The point is that the bill depends on what the portfolio is made of, not only on its size.
Which countries have estate tax treaties with the US?
Fifteen countries have estate or estate-and-gift tax treaties with the United States, according to the IRS.
| Country | Treaty covers |
|---|---|
| Australia | Estate and gift |
| Austria | Estate and gift |
| Canada | Estate, through Article XXIX B of the income tax treaty |
| Denmark | Estate and gift |
| Finland | Estate |
| France | Estate and gift |
| Germany | Estate and gift |
| Greece | Estate |
| Ireland | Estate |
| Italy | Estate |
| Japan | Estate and gift |
| Netherlands | Estate |
| South Africa | Estate |
| Switzerland | Estate |
| United Kingdom | Estate and gift |
Each treaty works differently. Some settle which country may tax particular assets; others give the country of domicile the main right to tax and leave the US with real estate and business property. Two features matter most for portfolio investors. A pro rata credit replaces the $13,000 with the US citizen's credit multiplied by the share of the worldwide estate located in the US. The treaty with Germany and the Canadian provisions both work this way, and the German text guarantees that the credit is never less than $13,000. Canada adds a small-estate rule: when a Canadian resident's worldwide estate is no more than US$1.2 million, US shares are exempt altogether.
Worked example: A German resident with a treaty credit
Klaus, a German citizen living in Munich, dies with a $3,000,000 worldwide estate that includes $500,000 of US shares, one sixth of the total. The tentative US tax on $500,000 is $155,800. His estate's pro rata credit is one sixth of $5,945,800, the credit a US citizen's estate receives in 2026, or about $990,967. The credit exceeds the tax, so no US estate tax is due. The executor must still file Form 706-NA, attach Form 8833 to claim the treaty position, show the credit calculation and include a copy of the German estate tax return.
Residents of the many countries outside this list, including India, Mexico, Brazil and the Gulf states, get only the statutory credit. The country guides for India, Mexico and Canada apply these rules to local circumstances.
How does an executor settle a nonresident's US account?
The executor values the US assets, files Form 706-NA within nine months when they exceed $60,000, pays any tax and then asks the IRS for a transfer certificate.
List and value the US assets
Gather date-of-death statements for every US account and value each US-situs holding. If no executor has been appointed in the US, anyone holding the decedent's US property is treated as an executor for this purpose and shares the filing duty.
Collect the worldwide figures
Obtain a certified copy of the foreign estate or inheritance tax return, or the estate inventory filed with the court at home. It supports the deduction for expenses and debts and any treaty credit, and documents in another language need an English translation.
File Form 706-NA and pay within nine months
Both the return and the tax are due nine months after death. Form 4768 gives an automatic six-month extension to file, and an executor abroad can ask for a second one, but interest runs on tax paid after the original due date.
Claim any treaty benefit
Attach Form 8833 to disclose a treaty-based position. For a pro rata credit, show the calculation and attach the return filed in the treaty country; for a treaty exemption, list the exempt assets with no value against them.
Request the transfer certificate
Fax the filed Form 706-NA to the IRS to ask for the certificate. Where US assets were at or below the threshold and no return was required, send the will, any foreign death tax returns, the death certificate and a notarized affidavit listing every US asset instead. The IRS allows 12 to 18 months to review that package, and may reply that no certificate is needed.
Report values to the heirs
Within 30 days of filing Form 706-NA, the estate files Form 8971 to tell the IRS and each heir the estate tax value of what they received, which becomes their cost for any later sale.
No transfer certificate is needed for property administered by an executor appointed, qualified and acting in the US. An estate tax closing letter is available on request through Pay.gov for a $67 fee, at least nine months after the return is filed.
Do gifts, spouses and joint accounts change the US estate tax bill?
They can, in both directions: gifts of shares during life usually escape US tax, while a non-US-citizen spouse or a joint account can raise the bill.
Spouses. Property left to a surviving spouse who is a US citizen qualifies for the marital deduction. A spouse who is not a US citizen gets it only if the property passes into a qualified domestic trust, unless a treaty provides otherwise: the German treaty adds a special marital deduction and the Canadian provisions a marital credit for qualifying estates.
Joint accounts. The rule that counts only half of a married couple's jointly held property does not apply when the surviving spouse is not a US citizen. The full value of a joint account is included in the estate unless the executor can show what the survivor contributed, and only that proportion comes out. Joint holdings with children or other relatives follow the same contribution test.
Gifts. Nonresidents owe US gift tax only on gifts of US real estate and tangible property located in the US, apart from narrow cases such as some former citizens. Gifts of shares, which are intangible property, generally fall outside it, so lifetime gifts are one way families shrink a US estate. Where a gift is taxable, the annual exclusion is $19,000 per recipient, or $194,000 to a spouse who is not a US citizen, and nonresidents have no lifetime gift credit to absorb the rest. A gift that keeps strings attached, such as the right to the income, can still be pulled back into the estate.
Risks and pitfalls for heirs of US assets
- A frozen account. Shares can sit at a US custodian for a year or more while the IRS works through the file, and they remain exposed to market moves throughout.
- Missing paperwork. Without the foreign return or inventory, the estate loses the proportional deduction and any treaty credit, as the Dubai example shows.
- Double taxation. Your home country may levy its own inheritance or estate tax on the same shares. Whether it credits the US tax depends on its law and on any treaty.
- Look-alike assets. US-domiciled bond funds, Treasury ETFs and money market funds feel like cash but count as US property.
- Late filing. The nine-month deadline applies to tax as well as the return, and penalties and interest accrue on both.
- Changing law. The thresholds for nonresidents are set by Congress and the treaties by governments, and either can change.
Local rules decide how an estate is taxed at home and whether the US tax is credited, and US estate planning for a foreign family touches the laws of at least two countries. A tax professional or estate lawyer who works across borders can review your holdings before the question becomes urgent. The W-8BEN guide and US dividend withholding by country cover the taxes you pay while alive, what is an ETF explains why a fund's domicile matters, and the SPY data page shows one US-domiciled fund that would count toward the threshold.