US tax for an owner abroad · A term for founders abroad
What is withholding tax?
Tax 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.
Checked against the IRS's instructions and the states' own rules. Reviewed by Saais Patel, compliance reviewer.
Term 104 of 105 in the glossary, filed under W.IRS: Publication 515, withholding on foreign persons
Withholding tax, for a founder abroad.
Rather than collect tax from a foreign recipient later, the US has the payer withhold it. The standard rate on US-source dividends, interest and royalties is 30%, and a tax treaty can lower it to 15%, 10%, 5% or 0%. The recipient claims the lower rate by giving the payer a W-8BEN. Nothing is withheld on payments for services performed outside the US.
Two other kinds touch founders: backup withholding of 24% when a US payee gives no taxpayer number, and withholding by a multi-member LLC on foreign partners' shares of US business income. The payer reports what it withheld on Form 1042-S.
Sources: IRS: Publication 515, withholding on foreign persons.
What founders ask next.
- Why was 30% withheld from my payment?
- Usually because the payer had no W-8BEN from you, or the income was US-source royalties or dividends. Give the form, with a treaty claim if your country has one.
- Is anything withheld on payments to my LLC from US clients?
- Not on services you perform outside the US, provided the right form is on file.
03 · See also
- US tax for an owner abroadFDAP incomeFixed 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.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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