Nonresident Tax Issues: Effectively Connected Income, Structures for Holding U.S. Assets, Treaty Benefits

Description

NRAs are taxed on income effectively connected with a U.S. trade or business and non-U.S. trade or business income that is sourced to the U.S.--fixed and determinable annual or periodic income, better known as FDAP income. With more and more NRAs doing business in the U.S., the determination of whether a regular, substantial, and continuous business activity is taking place within the U.S. is critical.

The primary criteria for taxation, however, can be altered when and if there is a U.S. treaty with the related country. Deductions and credits are available to offset business income too, but a return must be timely filed to take advantage of these.

In addition to income taxes, NRA advisers must consider the significant effect of estate and gift (transfer) taxes when advising NRAs. The U.S. estate tax regime is particularly potent since NRAs receive a $60,000 estate tax exclusion compared to the resident exemption of $11.58 million (2020).

A nonresident estate tax is assessed on all U.S. property owned at death with certain exceptions. Like income tax, estate and gift taxation can be modified by U.S. Treaties. Understanding the estate as well as income tax issues affecting nonresidents is vital for practitioners working with these U.S. taxpayers.

Listen as our panel of experts explains the ins and outs of NRA taxation, including nonresident classification, foreign entity taxation and ownership structures, U.S. investments by NRAs, and potential tax repercussions faced by these U.S. taxpayers.