U.S. Agent of Foreign Person

If you make a payment to a U.S. person and you have actual knowledge that the U.S. person is receiving the payment as an agent of a foreign person, you must treat the payment as being made to the foreign person.

U.S. Withholding Agent

For purposes of non-resident aliens (NRA) withholding, a withholding agent is any person, (U.S. or foreign), that has control, receipt, custody, disposal, or payment of any item of income of a foreign person that is subject to NRA withholding. A withholding agent includes but is not limited to individuals, U.S. corporations, foreign intermediaries, and certain U.S. branches. See Treasury Regulations Section 1.1441-7(a).

Effectively Connected Income (ECI)

Generally, when a foreign person engages in a trade or business in the U.S., all income from sources within the U.S. connected with the conduct of that trade or business is considered to be ECI. This applies whether or not there is any connection between the income, and the trade or business being carried on in the U.S., during the tax year.

Fixed or Determinable, Annual or Periodic (FDAP) Income

Some of the more common expenses paid by U.S. withholding agents which would result in FDAP income to their vendors and other service providers are interests, royalties, compensation for personal services, rents, pensions or annuities, and gains from the sale or exchange of the patents, copyrights, and similar intangibles that are described in Internal Revenue Code Section 865(d).

Resident Alien

You are a resident alien of the United States for tax purposes if you meet either the green card test or the substantial presence test for the current calendar year.

Green Card Test: You are a lawful permanent resident of the United States at any time if you have been given the privilege, according to the immigration laws, of residing permanently in the United States as an immigrant. You generally have this status if the U.S. Citizenship and Immigration Services (USCIS) (or its predecessor organization) has issued you an alien registration card, also known as a “green card.”

Substantial Presence Test: You will be considered a U.S. resident for tax purposes if you meet the substantial presence test for the current calendar year. To meet this test, you must be physically present in the United States for at least:

1. 31 days during the current calendar year, and

2. 183 days during the 3-year period that includes the current calendar year and the 2 years immediately before that, counting:

a. All the days you were present in current calendar year, and

b. 1/3 of the days you were present in current calendar year minus one, and

c. 1/6 of the days you were present in current calendar year minus two.

Non-Resident Alien (NRA)

If you are an alien (not a U.S. citizen), you are considered to be a NRA unless you meet one of the two tests described -under the subsection Resident Aliens.

Foreign Corporation

A foreign corporation is one that does not fit the definition of a domestic corporation. A domestic corporation is one that was created or organized in the United States or under the laws of the United States, in any of its states, or the District of Columbia.

Disregarded Entities

A business entity that is not a corporation and that has a single owner may be disregarded as an entity separate from its owner (a disregarded entity) for federal tax purposes. The payee of a payment made to a disregarded entity is the owner of the entity.

If the owner of the entity is a foreign person, you must apply NRA withholding unless you can treat the foreign owner as a beneficial owner entitled to a reduced rate of withholding.

If the owner is a U.S. person, you do not apply NRA withholding. However, you may be required to report the payment on Form 1099 and, if applicable, backup withhold. You may assume that a foreign entity is not a disregarded entity unless you can reliably associate the payment with documentation provided by the owner, or you have actual knowledge or reason to know that the foreign entity is a disregarded entity.

Foreign Person

A foreign person includes a NRA individual, foreign corporation, foreign partnership, foreign trust, a foreign estate, and any other person that is not a U.S. person. It also includes a foreign branch of a U.S. financial institution if the foreign branch is a qualified intermediary. Generally, the U.S. branch of a foreign corporation or partnership is treated as a foreign person.