Page 3 - U.S, International Taxation Inbound - Outbound Transactions_Neat

Inbound Transactions

• Inbound transactions include transactions in which the United States imposes tax on foreign

persons.

• The United States has taxing jurisdiction over non-resident aliens and foreign corporations

(foreign persons) only with respect to income that has nexus to the U.S.

• The level of economic activity that foreign persons carry out in the U.S. determines the tax

regime to which they are subject. The United States imposes taxes to non-resident aliens

under two concepts:

I. Effectively Connected Income; and

II. Non-Effectively Connected Income also known as FDAP Income (Fixed or

Determinable Annual or Periodical gains, profits, and Income).

I. Effectively Connected Income

Foreign persons with sufficient presence and activities in the U.S. are considered to be

engaged in a U.S. trade or business (EBT) (IRC. Sec. 871(b), 882).

Foreign persons that are considered to be EBT are taxed on the income that is treated as

“effectively connected “ with a trade or business on a net basis ( I.e., taking into account

deductions that ca be attributed to such income) at graduated tax rates, in the same

manner that is applicable to U.S. persons.