Foreign Persons Having Business in the United States-Tax Implication


According to the IRS guidelines,all income derived from a foreign persons that conducts trade or business is regarded as Effectively Connected Income(ECI).

This should not be confused with Fixed,Determinable ,Annual ,Periodic Income (FDAP).

The FDAP refers to income that is fixed(you know the amount expected),determinable(in calculating or deriving the amount),annual and periodic,periodic meaning the periodic in receipt .

There are various items that fall under FDAP including rent.Thus a person recieving rental income is not regarded as ECI.

The difference in the two is that ECI is taxed at graduated rate while FDAP is at 30% although for FDAP,there is relief for tax treaty countries.

Another huge difference is that for FDAP is that deductions and netting to derive at taxable income is not allowed unlike in the case of ECI.

If you have any questions,do not hesitate to call us


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