International Taxation



A. Foreign Persons -

Doing Business or Investing in the U.S.. Foreign persons who plan to do business in the United States or invest in a new or existing U.S. business entity are faced with a myriad of business, legal and tax issues. U.S. counsel advising foreign persons regarding the ownership structure for a contemplated business or investment in the United States should have a basic understanding of the U.S. system of international taxation of foreign persons.

Nonresident aliens and foreign corporations are subject to U.S. federal income taxation on their taxable income that is effectively connected with the conduct of a U.S. trade or business. The U.S. also imposes a 30% tax (or such lesser rate as is provided by an applicable income tax treaty) on the gross amount of U.S. source interest, dividends, rents, royalties and other fixed, determinable, annual or periodical income from U.S. sources of nonresident aliens and foreign corporations if such income is not effectively connected with the conduct of a U.S. trade or business. In addition, foreign corporations doing business in the U.S. are subject to the branch profits tax.

U.S. income tax treaties often modify the general rules of taxation for nonresident aliens and foreign corporations doing business or investing in the U.S. An applicable income tax treaty may reduce or eliminate the 30% gross basis tax imposed on nonresident aliens and foreign corporations. In addition, an applicable income tax treaty may limit the imposition of U.S. tax on business operations of a foreign person to cases where the business is conducted through a permanent establishment. For U.S. federal estate and gift tax purposes, nonresident aliens are subject to U.S. federal estate and gift tax on their “property situated in the U.S.” U.S. estate tax treaties may affect the determination of whether an alien is domiciled in the U.S. for U.S. estate tax purposes.

Originally published for the Texas Society of Certified Public Accountants Houston CPA Society - June 12, 2013.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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