Persons who are not US citizens or resident aliens or nonimmigrants in the US are subject to federal income tax. Foreign residents – who meet either the “green card” test or the substantial presence of test – are subject to Income tax in the same way which US citizens, that is, US income tax is subject to worldwide. income Nonresident aliens are subject to income tax based on the source of their income, and whether their income is “effectively connected with the trade or commerce of the United States.”
For non-residents, taxable income is separated into two categories:
1. Income that is effectively connected with a US trade or business after deductions that have been allowed is subject to our income taxes tax< /a> at the applicable rates – The same rates that apply to US citizens and residents – or lower if federal tax provisions apply.
2. US income is subject to tax because the income is a US source, but not linked to income. A US trade or business is subject to a flat 30% tax.
If a non-resident is deemed to be engaged in a trade or business in the US, all income from sources within the US that is connected to the conduct of that trade or business is “effectively connected income” (ECI). Therefore, in order to determine your tax liability, it is first necessary to determine whether you are doing business or doing business in the US.
Businesses engaged in Trade or in the US.
The nature of your activity determines whether you are engaged in commerce or business in the United States. Generally, for US income tax purposes, you are considered to be engaged in trade or commerce in the US. if:
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· You are a student or temporary student currently in the United States under an “F”, “J”, “M” or “Q” visa. Any part of the scholarship or partnership that you receive, that is US income or tax, is considered income effectively connected with the trade or commerce.
· You own and operate a business in the United States, whether the business involves providing services or buying merchandise or other goods. If you trade goods or merchandise outside the US and sell them in the US, you are engaged in a US trade or business.
· You are a partner in a company that trades in the United States or does business at any time in you are busy. in the second year
· You are the trustee of an estate or trust that is a US market or business.
· You have a gain or loss from the sale or exchange of US real property.
· You have income from the rental of real property and elect to treat it as income effectively connected with a US trade or business.
Trading in Stocks, Securities, or Commodities
If you trade in stocks, securities, or interests through a broker or agent who is a resident of the United States, and this is your only U.S. business activity, you are not considered to be engaged in U.S. trading or commerce. For things in stocks and bonds, this applies even if you are a broker. For things in interest, it applies to interests that are usually traded in organized interest exchanges.
However, if at any time during the tax year you will have a US job, or a specific place of business where you conduct business in stocks, bonds, or interests, you may be considered a US market or business.
The contract is drawn up
Investment income from US sources may or may not be effectively treated as US trade or commerce. There are two tests that are relevant to determining whether an investment’s return is effectively linked;
· Asset-use Test: If the income is derived from assets used for use in a US trade or business, the income is effectively connected.
· Business Activities Test: Income is considered to be effectively connected if the administration of US trade or commerce was a material element in producing the income.
The business case test would normally apply to income that is not generated directly from trade or business activities, but rather from the use of trade or business assets, for example, interest on accounts or notes receivable, or income from re-financing trade; since renting such property is not a normal line of business.
For purposes of the use test, the stock in the corporation is not considered an item in use, or for use in the trade or commerce of the United States. Therefore, investment income from stock transactions will not necessarily be treated as effectively connected income.
The business activity test has an important effect, and it generally applies when dividends or interest are received by the seller on stocks or bonds, royalties are received from licensing licenses or other similar assets, and when fees are traded through the business service.
Personal Service is conducted
You receive income for personal services in the tax year in which the U.S. trade or business is considered to be effectively connected with that trade or business. If you receive the return in a year other than the year you received the services (for example, you receive the return in January for December services), the return will still be considered effectively connected.
If you are considered to be engaged in a US trade or business solely because you perform services in the US, you have other income, such as income (loan and dividends, rents and royalties) and gains and losses from the sale or exchange of capital goods, generally not considered to be effectively part of a trade or business. . However, if there is a direct economic connection between your property to be obtained and your business or business activities, any income, profit or loss from that property will be considered effectively connected.
Pensions
If you are a non-resident who receives pension or retirement pay for services you performed in the United States after 1986 , your payments are considered to be effectively connected with a US trade or commerce, even if you are no longer in a US trade or commerce when you receive these payments.
Transportation Income
Income tax, for use tax, is income from the use of a vessel or aircraft, or from directly related services. All income transfers are considered US source income if the transfer begins and ends in the US. If the transfer either begins or ends in the US, 50% of the income is considered US source.
The transportation income is considered to be effectively connected with a US trade or business if you had a specific place of business in the US where you earned the Income , and at least 90% of your US source transportation income is usually attributed to regularly scheduled transportation, that is, a ship or aircraft that follows an issued schedule with frequent sailings or flights at specific intervals, beginning with If these two conditions (“fixed place of business” and “regularly scheduled transportation”) do not meet, your transportation is not effectively connected with U.S. trade or commerce and is subject to the 4% tax.
Real Property
Gains or losses from the sale or exchange of U.S. real property interests are considered to be actually connected. This includes direct studies on real property located in the United or the Virgin Islands, as well as studies in the US. corporation holding real property.
Real property includes land and the natural resources attached to the land, such as crops and timber, and minerals and other deposits; buildings, permanent structures and parts thereof; and personal property is connected with the use of real property. This includes personal property for farming, mining, logging, or construction equipment, as well as properties used as hospitality facilities or rental office space.
If you own shares in a US real estate corporation, any gain or loss on the sale of those shares will be taxed Like if you are trading or trading in the US itself. To be considered a US corporation holding real assets, the equal block number of the corporation’s real assets in the US must be at least 50% the total fair money value of all his real property, both in and out of the United States, plus any other property in use, or to be held for use in trade or business.
Stock in a corporation that is traded on the U.S. real estate market is not considered a real property interest unless you own more than 5% of the market value of all of that corporation’s stock. And, an interest in a foreign corporation that owns real property in the United is generally not considered in the US. real property interest.
A certain place for Business
There are certain circumstances in which the foreign source income must be considered effectively connected with a US trade or commerce. If you have an office or other specific place of business in the United States, this office is a material element. in the issuing of income, and income in the ordinary course of trade or business, which is carried on through the same office or fixed place of business, then the income is effectively connected.
There are three types of foreign income that can effectively be considered under this combined rule;
1. Income and royalties for the use of, or the privilege of using, intangible assets located outside the United States include patents, jurisdictions, processes and formulas, goodwill, trademarks, trade names, and franchises.
2. Dividends and interest from active use of loans, finance, or similar businesses in the US.
3. Income, gain, or loss from sales of stock in trade, items included in inventory, or property primarily sold to customers in the course of business. This is not the case if the item sold outside of us and the item of someone else’s office or place of business was material in the sale.
Reporting
Income effectively related to a US trade or business is reported on lines 8 through 23 of Form 1040NR, US Nonresident Alien Income Tax Return who filed every year.
Nonresidents are generally subject to a 30% withholding tax on income they receive from US sources. Personal service income, such as employment, would effectively be considered connected income and subject to the same withholding tax that US citizens and residents are subject to. Gains from the sale or disposition of U.S. real property are subject to withholding pursuant to section 1445 of the Internal Revenue Code, and a shareholder’s participation in a foreign joint venture is effectively subject to withholding pursuant to section 1446.
Other income is effectively not subject to withholding when trading or trading in the US, but you must file a W-8ECI form, establish that you are not a US person, and that you are the owner of the profits and gains. income effectively connected with trade or commerce in the US. If you also have income that is not effectively connected, you will also need form W-8BEN, form W-8EXP or form W-8IMY;
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· Form W-8IMY, Certificate of Foreign Intermediary, Foreign entity, or certain US branch of the United States Withholding Tax it is said with intermediaries, agent, named, or guardian for the sake of others, and not for your own sake.
If you perform personal services as an employee in the US, complete Form W-4, Employee Allowance Withholding Certificate. If you are an independent contractor, you can request an exemption from withholding by filing Form 8233, Exemption from Withholding on Independent Compensation (and Certain Dependents ) personal services of a nonresident alien.
The tax forms, the above-referenced withholding taxes are not filed with the Internal Revenue Service, but rather with the withholding agent or the tax office. All of these forms are available for download from the Internal Revenue Service website at www.irs.gov.
Report:
- Deloitte – “Taxation of Foreign Nationals by the United States”: www.deloitte.com Internal Revenue – Business – “Taxation of Nonresident Aliens”: www.irs.gov Internal Revenue Service Publication 519, Tax Guide for Aliens: www.irs.gov Treaty FAQ – “Non-Resident Aliens and U.S. Holdings”: invest-faq.com University of Minnesota – Office of Human Resources – “Schools, Companies, and Nonresident Alien Paid Donations”: www1.umn. edu
