Foreign Persons Investing in the U.S
Foreign persons who have effectively connected income with conduct of trade or business with in the United States are taxed at graduated rates.
Foreign person’s U.S source investment income is taxes at 30% flat rate.
Capital gains from sale of stocks, bonds and other securities are generally exempt from U.S taxation.
Corporations paying dividends, borrowers paying interest and licensees paying royalties must withhold 30% tax.
A withholding agent who fails to withhold is liable for the uncollected taxes.
Gains or losses realized from the sale of U.S real property interest are taxed in the same manner as income effectively connected with the conduct of U.S trade or business.
To ensure collection, any purchaser of a U.S real property interest must withhold a tax equal to 10% of the amount realized by the foreign person on the sales.
Foreign Person Doing Business in the United States
A foreign person who is engaged in a U.S trade or business is subject to U.S tax on the income effectively connected with the conduct of that U.S trade or business.
A foreign person who is resident of a country that has income tax treaty with the United States, his business profits are exempt from U.S taxation unless those profits are attributable to a permanent establishment.
Foreign person’s U.S source income is effectively connected income. U.S source investment type income is not considered effectively connected income.
A foreign person may deduct expenses related to his effectively connected gross income.
Effectively connected income is also subject to alternative minimum tax.
A foreign corporation engaged in a U.S trade or business is also subject to branch profit tax.
The branch profit tax is generally equal to 30% and is subject to treaty reductions.
A foreign corporation’s U.S branch operations may also be subject to the tax on excess interest.
Disclaimer:
This information is for educational purposes only. It does not constitute any legal advice or opinion. Please do not use any of its contents without seeking a professional advice.
References:
US Taxation of International transactions 9th Edition
Robert J. Misey Jr.
Michael S. Schadewald
Publishers: Wolter Kluwer, CCH Incorporated.