Foreign Persons doing business in the United States

Ref Code Section 871 (b) and 882:

According to these code sections if a foreign person is engaged in a U.S trade or business, he is subject to U.S taxes for any income that is connected with U.S trade or business. If a foreign corporation operates an unincorporated sales branch located in the United States, it is considered as a trade or business conducted in the U.S.

Effectively connected income of a foreign person includes all U.S source income. Foreign persons are allowed to deduct expenses related to Effectively Connected gross income.

Effectively connected income of a foreign person (Foreign corporations and non-resident aliens) is subject to progressive rate schedule that applies to U.S citizens and domestic corporations. Effectively Connected income is also subject to alternative minimum tax.

Foreign corporations doing business in U.S are also subject to branch profit tax according to code section 884. Branch profit tax rate is 30% but can be lowered due to treaty reduction. Foreign corporations operating branch offices in U.S can also be subject to tax on excess interest.

Ref article 5 and 7 of the U.S model treaty:

According to these articles if a foreign person is a resident of a country that has a treaty with the United States, then the foreign person’s business profits are exempt from U.S taxation unless these profits are from a permanent establishment in United States.

Ref Code Section 864:

According to this code section U.S source investment type income is subject to U.S withholding tax.

 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:

www.jct.gov/publications.html

http://www.law.cornell.edu

http://www.irs.gov/publications

U.S Taxation of International Transactions by Robert J. Misey, Michael S. Schadewald

Introduction to United states International Taxation by Paul R. McDaniel, Hugh j. Ault and James R. Repetti

International Taxation by Joseph Isenbergh

International Taxation in a nutshell by Richard L. Doernberg.

International Income Taxation, Code and Regulations by Robert J. Peroni – CCH

Mansoor Suhail (Mani)

Accountant

BSBA – EA – ICIA – RA

Tax for Canada and U.S.A

Web: www.theaccountingandtax.com and www.taxservicesguru.com

Blog: http://taxservicesguru.blogspot.ca

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