US tax for an owner abroad · A term for founders abroad
What is FDAP income?
Fixed or periodic US-source income such as dividends, interest and royalties, withheld on at 30% or a treaty rate when paid to a foreign person.
Checked against the IRS's instructions and the states' own rules. Reviewed by Saais Patel, compliance reviewer.
Term 34 of 105 in the glossary, filed under F.IRS: Publication 515, withholding on foreign persons
FDAP income, for a founder abroad.
FDAP stands for fixed, determinable, annual or periodical. US-source passive income of this kind paid to a foreign person is taxed by withholding at 30% of the gross amount, with no deductions, unless a treaty lowers the rate. Royalties from a platform, dividends from a US company and interest are the usual examples.
Payments for services performed abroad aren't US-source, so they aren't withheld on. A W-8BEN is how you claim a treaty rate on FDAP income.
Sources: IRS: Publication 515, withholding on foreign persons.
What founders ask next.
- Is pay for my services FDAP income?
- Only if the work is done in the US. Pay for services performed abroad is foreign-source and not withheld on.
- Can I get FDAP withholding back?
- If too much was withheld, for example because no W-8BEN was on file, a refund is claimed on a US return. It's simpler to give the payer the form first.
03 · See also
- US tax for an owner abroadWithholding taxTax a US payer deducts before paying a foreign person: 30% on US-source passive income, unless a treaty rate is claimed on a W-8.Read the term
- US tax for an owner abroadTax treatyAn agreement between the US and another country that lowers withholding, decides which country taxes what, and relieves double taxation.Read the term
- US tax for an owner abroadForm W-8BEN and W-8BEN-EThe IRS forms a foreign person or foreign company gives a US payer to certify foreign status and, where it applies, claim a treaty rate.Read the term
- US tax for an owner abroadDisregarded entityA single-member LLC the IRS ignores for income tax, treating its income as the owner's; it still files Form 5472 if the owner is foreign.Read the term
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