If you are not a US citizen or US resident and you own shares of American companies, your estate gets only a $60,000 exemption from US federal estate tax, and anything above that is taxed at rates climbing from 18% to 40%. That is the core of the US estate tax rules for nonresident aliens holding US stocks, and it applies whether the shares sit in a US brokerage or a foreign one. The rules also reach further than most foreign investors expect, catching US-listed ETFs and mutual funds along with individual stocks.
The good news is that the same tax code that hits these assets so hard at death lets you give them away tax-free while alive. Understanding both sides of that asymmetry is the whole game.
Which of Your Holdings Count as US Property
Federal law fixes the “location” of stock by the place of incorporation of the issuing company, not by where the shares are held or traded.1Office of the Law Revision Counsel. 26 USC 2104 – Property Within the United States If a company was organized under the laws of any US state, its stock is US-situs property, even when the owner lives abroad and the shares sit in a foreign account. Apple, Microsoft, Tesla, every S&P 500 constituent counts.
US-domiciled ETFs and mutual funds are in the same net. A Vanguard or iShares fund is itself a US entity, so shares in it are US-situs property even when the fund tracks an international index.2Internal Revenue Service. Some Nonresidents with US Assets Must File Estate Tax Returns An Irish-domiciled ETF holding the same US stocks would not be US-situs, because you would own shares in an Irish company.
American Depositary Receipts (ADRs) sit on the other side of the line. An ADR represents ownership in a foreign corporation’s shares held with a custodian bank, so the underlying issuer is not domestic. The IRS treated ADRs as non-US-situs property in Private Letter Ruling 200243031, reasoning that ADRs evidence ownership in a foreign entity rather than shares issued by a US one.
Cash sitting in a US brokerage account can also create exposure, though the statute carves out certain bank deposits and debt obligations under Section 871(g)–(i), and portfolio interest bonds are outside the estate tax base.2Internal Revenue Service. Some Nonresidents with US Assets Must File Estate Tax Returns The safest working rule: any asset tied to a US-incorporated entity counts unless a specific exclusion says otherwise.
One boundary worth naming. All of this assumes you are a nonresident alien for US tax purposes — no US citizenship, no green card, and not enough days in the country to meet the substantial presence test.3Internal Revenue Service. Nonresident Aliens If you hold a green card or meet that test, you are taxed as a US resident and get the full citizen-level exemption instead.
The $60,000 Exemption and the Rate Table
Nonresident aliens receive a unified credit of $13,000 against the estate tax.4Office of the Law Revision Counsel. 26 USC 2102 – Credits Against Tax Run through the graduated brackets, that credit exactly covers the tax on a $60,000 taxable estate, so in practical terms it shelters the first $60,000 of US-situs assets. Compare that to the $15 million filing threshold for US citizens and residents in 2026 and the exposure comes into focus.5Internal Revenue Service. Estate Tax
Everything above $60,000 is taxed on this schedule:
- $0–$10,000: 18%
- $10,001–$20,000: 20%
- $20,001–$40,000: 22%
- $40,001–$60,000: 24%
- $60,001–$80,000: 26%
- $80,001–$100,000: 28%
- $100,001–$150,000: 30%
- $150,001–$250,000: 32%
- $250,001–$500,000: 34%
- $500,001–$750,000: 37%
- $750,001–$1,000,000: 39%
- Over $1,000,000: 40%
The brackets apply to the gross value of US-situs assets at the date of death, less the $60,000 the credit shelters.6Office of the Law Revision Counsel. 26 US Code 2001 – Imposition and Rate of Tax A nonresident alien who dies holding $1.5 million in US stocks faces roughly $500,000 in federal estate tax. Publicly traded stocks are valued at their closing price on the date of death, or the average of the nearest trading days if death falls on a weekend or holiday.
How a Tax Treaty Can Enlarge the Exemption
The United States has estate or gift tax treaties with roughly 16 countries, including Australia, Canada, France, Germany, Japan, the Netherlands, and the United Kingdom. These agreements often replace the flat $60,000 exemption with a pro-rata share of the full US citizen exemption, and the mechanism is written into the tax code itself.4Office of the Law Revision Counsel. 26 USC 2102 – Credits Against Tax
The formula: divide the value of the decedent’s US-situated assets by the value of their entire worldwide estate, then multiply that fraction by the full US citizen exemption ($15 million in 2026). The result is the treaty-enhanced exemption.7Internal Revenue Service. Internal Revenue Manual 4.25.4 – International Estate and Gift Tax Examinations A Canadian resident who dies with a $10 million worldwide estate and $500,000 in US stocks has US assets equal to 5% of the global estate. Five percent of $15 million is $750,000, which fully shelters the $500,000 US portfolio. Without the treaty, the same estate would owe tax on $440,000.
Claiming the treaty benefit comes with a disclosure cost. The estate has to report the decedent’s worldwide assets on Form 706-NA and attach a statement invoking the specific treaty provision, so information the IRS would otherwise never see gets handed over. For estates where US holdings are a small slice of a large global picture, the trade is usually worth making. Each treaty has its own terms, so the exact provisions vary by country.
Giving the Shares Away During Your Lifetime
This is the single most useful fact in the whole area: a nonresident alien can gift US corporate stock during life free of federal gift tax, with no dollar cap. The tax code exempts transfers of intangible property by nonresidents who are not US citizens, and stock is intangible property.8Office of the Law Revision Counsel. 26 USC 2501 – Imposition of Tax The IRS identifies US corporate stock as an example of the intangible property covered.9Internal Revenue Service. Gift Tax for Nonresidents Not Citizens of the United States
The result is a striking asymmetry. Hold $5 million in Apple at death and your estate faces up to 40% tax with a $60,000 shelter. Gift the same shares to your children tomorrow and the federal transfer tax bill is zero.
Two trade-offs to weigh. The exemption does not cover tangible US property such as real estate or physical items located in the United States. And the recipient takes your original cost basis rather than the stepped-up basis they would get at death, so capital gains tax on eventual sale can be higher. For investors whose main concern is the estate tax exposure itself, lifetime transfers remove it entirely.
Holding US Stocks Through a Foreign Entity or Non-US Fund
If you want to keep the assets rather than give them away, the other main lever is to change what you own so that it is not US-situs in the first place.
Shares in a foreign corporation are not US-situs property, even if that corporation’s only asset is a portfolio of US stocks. The estate tax looks at what the decedent held directly, which is the foreign company’s shares, not what the company held underneath. Setting up and maintaining a foreign holding company adds cost and complexity, and can raise other US reporting issues if you have any US filing obligations, but for large portfolios the estate tax savings can dwarf the compliance overhead.
A simpler version of the same idea is to invest through non-US-domiciled funds. An Irish-domiciled UCITS ETF that tracks the S&P 500 holds the same underlying US stocks as a US-domiciled ETF, but you own shares in an Irish entity rather than a US one, so the shares are not US-situs. Many international brokers offer these funds specifically because of the estate tax problem.
Filing Form 706-NA and the Deadlines That Matter
The estate representative reports US-situs assets and calculates the tax on Form 706-NA.10Internal Revenue Service. About Form 706-NA, United States Estate (and Generation-Skipping Transfer) Tax Return The return is due within nine months of the date of death. Filing Form 4768 before the due date gets an automatic six-month extension. An executor located outside the United States who has already received one extension can request additional time by filing a second Form 4768 with a written explanation.11Internal Revenue Service. Instructions for Form 706-NA
The completed return goes to the IRS processing center in Kansas City, Missouri.11Internal Revenue Service. Instructions for Form 706-NA The mailing address is Department of the Treasury, Internal Revenue Service Center, Kansas City, MO 64999. Along with the form itself, the estate has to provide date-of-death valuations for each asset (usually brokerage statements), evidence of the decedent’s nonresident status (typically a foreign death certificate and proof of foreign residence), and, if a treaty credit is claimed, a treaty statement and a worldwide-asset breakdown.
Penalties and Interest If You Miss the Deadline
Missing the nine-month deadline without an extension triggers a failure-to-file penalty of 5% of the unpaid tax for each month or part-month the return is late, capped at 25%.12Office of the Law Revision Counsel. 26 USC 6651 – Failure to File Tax Return or to Pay Tax If the IRS finds the failure was fraudulent, the monthly rate rises to 15% with a 75% cap. Penalties can be abated for reasonable cause, but not knowing about the filing requirement usually will not qualify.
Interest accrues separately on unpaid tax from the original due date until it is paid, and the rate resets quarterly. For 2026, the individual underpayment rate is 7% for January through March and 6% for April through June, compounded daily.13Internal Revenue Service. Quarterly Interest Rates An extension to file is not an extension to pay. When both the failure-to-file and failure-to-pay penalties apply in the same month, the filing penalty is reduced by the 0.5% monthly payment penalty, so the combined charge is 5% per month rather than 5.5%.12Office of the Law Revision Counsel. 26 USC 6651 – Failure to File Tax Return or to Pay Tax On a $200,000 tax bill filed six months late without reasonable cause, that is $50,000 in penalties on top of the interest.
The Transfer Certificate That Unlocks the Account
After the return is processed and any tax is paid, the IRS issues a transfer certificate confirming that the estate’s federal tax obligation is fully discharged.14Internal Revenue Service. Transfer Certificate Filing Requirements for the Estates of Nonresidents Not Citizens of the United States This document, sometimes referenced as IRS Form 5173, is what unlocks the brokerage account. US financial institutions will not retitle or release a nonresident decedent’s assets to heirs without it.
The practical effect is a wait. Heirs often sit for months after the tax is paid before they can access the shares, because the IRS has to complete its review and confirm the tax is fully discharged or provided for before it will issue the certificate. Complex holdings or a treaty claim can push that review well past a year. Anyone acting as executor should build that timeline into what they tell the beneficiaries.