By Kevin Bell, Partner
The United States (U.S.) has long been a safe haven for foreign investors. The U.S. has seen a dramatic increase in foreign investment because of good investment opportunities, better educational and economic opportunities, and long-standing political stability.
Foreign investors should understand that U.S. tax laws are complex and must be dealt with in a highly professional manner to avoid tax traps and take advantage of the many tax benefits offered by the U.S.
An adviser’s determination of whether a person is a resident alien or nonresident alien is critical. Resident and nonresident aliens are taxed in different ways. Resident aliens are generally taxed on their worldwide income in the same way as U.S. Citizens. Nonresident aliens usually are subject to U.S. income tax only on U.S. source income.
For a nonresident alien, income that is subject to U.S. income tax must be divided into two categories. The first category is effectively connected income (ECI) to a U.S. trade or business, which is taxed on a net basis under the graduated income tax rates applicable to U.S. resident individuals and domestic corporations. The second category is U.S. source income that is not effectively connected with a U.S. trade or business, which is taxed on a gross basis by withholding at the source at a rate of 30% without treaty. Any U.S. source fixed, determinable, annual, or periodic (FDAP) income (i.e. interest, dividends, rents, royalties, premiums, annuities, etc.) or capital gain from selling U.S. capital assets normally belongs to the second category. However, gains and losses from the sale of U.S. real property interests by a foreign person are treated as ECI subject to FIRPTA income tax withholding.
Kernutt Stokes’ international tax professionals have the resources, experience, and local competencies to assist foreign investors with all aspects of their accounting and taxation needs. Our tax planning and research professionals will help you make better and more informed decisions.
Below are just a few of the accounting, planning, and tax services offered by the Kernutt Stokes international tax services team:
- Business and individual tax return filing
- Audits, reviews, and compilations
- Nonresident alien tax withholding and reporting consulting
- FIRPTA tax withholding on nonresident alien’s real property disposition
- Entity selection and business structuring consulting
- Tax minimization strategies and planning
- Bookkeeping and accounting assistance
- Individual Taxpayer Identification Number (ITIN) Application
- IRS and state representation
To learn more about Kernutt Stokes’ international tax services, contact Kevin Bell or Terry Niegel at 541.687.1170.