In the 2017 Statistics of Income Bulletin, the IRS reported that foreign recipients of U.S. source income from treaty countries had an average withholding rate of 13.9% compared to 25.6% for payments made to residents of non-treaty countries. Absent certain exceptions and/or exemptions, a foreign person, including a foreign entity, is generally subject to tax at a flat 30% rate on U.S. source fixed, determinable, annual or periodical income; and subject to tax at progressive rates on income derived from a U.S. trade or business. Treaties can apply to reduce withholding rates as well as taxes. This is yet another reminder why it’s important to work with your U.S. tax counsel to take advantage of treaty-based benefits that may be available when properly planned, reported and disclosed.
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