Section 899: New U.S. “Revenge Tax” Shakes Foreign Investors

A new tax rule called Section 899 has been making news. This rule is part of a tax-and-spending plan supported by former President Donald Trump. People are calling it the “revenge tax” because it targets foreign investors who make money in the United States.

But what does this mean for the U.S., for other countries, and for people who invest in the U.S. from outside the country? Let’s break it down in a way that’s easy to understand.

What Is Section 899?

Section 899 is a new tax idea. It lets the U.S. government charge a tax of up to 20% on certain income made by foreign investors. This income is called passive income. That means money made from things like:

• Dividends (money from stocks)
• Interest (money from bonds)
• Royalties (money from using a brand or patent)
• Rents (money from property)

This tax is only for foreign people or companies who invest in the U.S., not American investors.

Why Is It Called a “Revenge Tax”?

This tax is aimed at countries that the U.S. believes are treating American companies unfairly.

Some foreign countries, like the United Kingdom (UK) and some countries in the European Union (EU), have started charging digital services taxes on big American tech companies like Google, Amazon, and Facebook. These countries say the companies make money from their people but don’t pay enough taxes there.

The U.S. doesn’t like that. So, Section 899 is a way to “get back” at those countries. That’s why people call it a “revenge tax.”

What Does Passive Income Mean?

Let’s say a person in France buys stocks in a U.S. company. When that company pays dividends, the French investor earns money. That money is passive income. The investor isn’t working in the U.S. or running a business here—they’re just earning money from owning something.

With Section 899, the U.S. could tax that passive income up to 20% if the investor is from a country that taxes U.S. companies in a way the U.S. sees as unfair.

Who Will Be Affected by Section 899?

Foreign investors will be the most affected. These are people or companies from other countries who invest in U.S. businesses, stocks, real estate, or other assets. They could end up paying more taxes on the money they earn in the U.S.

This includes:

• People in Europe
• People in the UK
• Investors in Asia
• Foreign companies that earn income from U.S. sources

Countries that already tax American businesses—like those with digital services taxes—are likely to be targeted first.

Why Is This a Big Deal?

Many experts are worried about Section 899. Here’s why:

1. It Could Scare Away Foreign Investors

If foreign investors have to pay more taxes, they may choose to invest somewhere else, like Canada or China. This could mean less money coming into the U.S., which might hurt the economy.

2. It Could Start a Tax War

Other countries might respond by taxing American companies even more. That could start a tax battle or even a “capital war,” where each side tries to hurt the other’s businesses and investors.

3. U.S. Businesses Might Suffer

Many U.S. businesses depend on foreign investors to grow. If those investors leave, U.S. businesses might have less money to expand or hire new workers.

What Happens Next?

Section 899 has already passed the House of Representatives. That means one part of the government has approved it. Now, it needs to be approved by the Senate before it becomes law.

Some Senators support it. Others are not sure. They worry it might hurt trade or make investing in the U.S. less attractive.

The final decision may come soon. If it becomes law, it could change how foreign investors think about putting money into the U.S.

Why Should Americans Care?

Even though this tax is on foreign investors, it can still affect everyday Americans. Here’s how:

• If foreign money leaves the U.S., it could cause the stock market to drop.
• Less foreign investment could mean fewer jobs and slower growth.
• Some U.S. companies might face more taxes overseas, leading to higher prices for American shoppers.

Is Section 899 Fair?

This is a big question. Some people say yes—it’s only fair to tax other countries the same way they tax us. They think Section 899 can help protect American companies and bring in more money to the U.S. government.

Others say no—it could make the U.S. seem unfriendly to investors and hurt our relationships with other countries.

There are good points on both sides, which is why this rule is getting a lot of attention.

What Should Foreign Investors Do?

If you are a foreign investor, you should:

• Talk to a tax advisor about how Section 899 could affect you.
• Watch the news to see if the Senate passes the law.
• Think carefully about where you invest your money.

Right now, Section 899 is not law yet. But if it passes, it could change how much money you keep from U.S. investments.