How to Start a Business in The USA by MyUSACorporation - HTML preview

Delaware then you will have no corporate tax to pay to the state of Delaware, only the federal corporate tax.

Q. I heard as non-resident alien I need to pay 30% income tax on my U.S. income. Is it true?

It is true in certain cases. It is called NRA (non-resident alien) withholding, meaning your payee keeps 30% of the sum they are paying you, and remits this sum to the IRS.

According to IRS rules “in order for a payment to be subject to NRA withholding, it must be a payment of FDAP income. FDAP is an acronym for Fixed or Determinable, Annual or Periodic. Some of the more common expenses paid by US withholding agents which would result in FDAP income to their vendors and other service providers are interest, royalties, compensation for personal services, rents, pensions or annuities and gains from the sale or exchange of the patents, copyrights and similar intangibles...” (see more details here).

Here is a key - for FDAP income paid to a foreign person to be subject to NRA reporting and withholding, the payment must be U.S. sourced. So how do you know if your FDAP income is in fact U.S. sourced? Here are some examples:

1. Interest: If the debtor is a U.S. resident, the interest is generally U.S. sourced.
2. Royalties: If the subject property is used in the U.S., the royalty payment is U.S. sourced. Payments made in connection with the sale of certain intangible assets, including copyrights and patents, are generally sourced similar to royalties when the payments are contingent on the productivity, use or disposition of the intangible.
3. Rents: If the rental property is located in the U.S., the rental payment is U.S. sourced.
4. Personal Services: If the services are performed in the U.S., the payment for those services is generally U.S. sourced.

Q. What is form W-8BEN, and when do I need to file it?

Form W-8BEN is a Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. You need to fill this form out and give to the withholding agent or payer if you are a foreign person and you are the beneficial owner of an amount subject to withholding. In other words, if you have U.S. sourced FDAP income your payer will be responsible to withhold the 30% tax based on the information listed on the W-8BEN.

Keep in mind, you need to submit Form W-8BEN when requested by the withholding agent or payer whether or not you are claiming a reduced rate of, or exemption from, withholding.

Q. What about tax treaty between U.S. and my country? How does it influence my income tax obligations?

If you as foreign vendor are a resident in a country that has a tax treaty with the United States, the 30% rate may be reduced. Each treaty has specific provisions which determine the reduced