Do Foreign Shareholders Need to Pay Taxes in the U.S. When Selling a U.S. Company?

When foreign shareholders sell their equity interests in U.S. companies, whether they are required to pay taxes in the United States is a key issue in cross-border investment and tax planning. In recent years, with increasing global capital flows and evolving international tax regulations, this issue has become increasingly complex. Particularly since 2025, several high-profile cases involving the transfer of equity in foreign-invested enterprises have sparked market discussions and drawn greater investor attention to related tax treatments.

Under current U.S. tax law-especially provisions in the Internal Revenue Code-whether non-U.S. residents including individuals and corporations must pay U.S. federal income tax when selling shares of U.S. companies largely depends on the nature of the assets represented by the shares and the extent of their connection to actual business operations in the United States. Generally, capital gains from the sale of stock in a U.S. company by non-residents typically are not subject to U.S. taxation, unless the company qualifies as a U.S. Real Property Holding Corporation USRPHC. However, if the company holds significant U.S. real estate assets or the transaction is viewed as an attempt to circumvent tax obligations, U.S. taxing rights may be triggered.

In addition, under the Foreign Account Tax Compliance Act FATCA, financial institutions may bear certain reporting obligations when assisting non-U.S. residents in conducting such transactions.

A recent news story illustrates this point well. According to a July 2025 Bloomberg report, an Asian-based investment fund planned to sell its shares in a U.S. technology company in a deal worth hundreds of millions of dollars. Although the fund was registered in an offshore jurisdiction, the tech company it invested in held significant real estate and infrastructure assets in the U.S. The Internal Revenue Service IRS launched an investigation into the transaction and required the buyer to withhold and remit applicable taxes before making the payment. This case serves as a reminder to foreign investors that simply being based outside the U.S. does not necessarily exempt them from local tax obligations when disposing of U.S. assets.

Another notable trend is the U.S. government’s increasing scrutiny over cross-border capital flows, especially after the global minimum tax agreement was reached. With the implementation framework for the global minimum tax released by the OECD at the end of 2025-though primarily targeting large multinational enterprises-it has indirectly prompted tax authorities worldwide, including in the U.S., to intensify their review of asset transfers by non-resident investors. In early 2025, the U.S. Treasury issued guidance explicitly stating that arrangements involving intermediate holding companies designed to avoid U.S. capital gains taxes would be subject to close scrutiny and possible countermeasures.

Bilateral tax treaties also play a critical role in this context. The United States has signed numerous tax treaties with other countries and regions aimed at avoiding double taxation. Some of these agreements provide tax exemptions for non-residents selling shares in U.S. companies. For example, under the U.S.-Netherlands tax treaty, qualifying Dutch residents may be exempt from U.S. tax when selling shares in a U.S. company. This explains why some investors prefer to hold U.S. assets through holding companies established in third countries. However, as the OECD’s Base Erosion and Profit Shifting BEPS initiative progresses, such tax avoidance strategies involving conduit companies are facing growing restrictions.

From a practical standpoint, foreign shareholders should thoroughly evaluate the asset composition and business model of the target company, as well as potential tax implications, before selling U.S. shares. It is advisable to engage professional tax advisors to conduct a detailed analysis based on the specific transaction structure and to consult with U.S. legal counsel in advance to ensure compliance. Furthermore, both parties should clearly define the allocation of tax liabilities in the transaction agreement to avoid unexpected tax issues that could delay the deal or increase costs.

In conclusion, whether foreign shareholders are required to pay taxes in the U.S. upon selling shares in U.S. companies does not have a one-size-fits-all answer-it depends on the specific circumstances of each case. Against the backdrop of increasingly stringent global tax oversight, investors should place greater emphasis on tax compliance and carefully plan transaction structures to achieve legitimate tax savings while avoiding unnecessary legal risks.