Page 7 - U.S, International Taxation Inbound - Outbound Transactions_Neat

Inbound Transactions (continued)

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

Annual or Periodical gains, profits, and Income)

Foreign persons that are not considered to be effectively connected with a trade or business

in the U.S. are generally subject to a 30% tax on their U.S. source income (FDAP). The tax is

applied on their gross income (deductions associated with the income are not allowed), the

taxes are required to be collected by the payor through withholding. Generally the following

categories of income are subject to the 30% withholding:

1. Interests;

2. dividends;

3. services;

4. rents;

5. royalties;

6. other fixed or determinable annual or periodical (FDAP) income; and

7. capital gains received by foreign persons that meet the U.S. presence test of IRC.

Secs. 871(a), 881(a)and Treas. Reg. Sec. 1.1441-2(b).