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Dividends received from domestic corps. are sourced inside the U.S.
Generally, dividends paid by a foreign corp. are foreign-source income
Exception - If ≥ 25% of foreign corp.’s income is effectively connected with a U.S. trade or business for the 3 tax years immediately preceding dividend payment, that percentage of the dividend is treated as U.S.-source income
U.S. Taxation of Nonresident Aliens (slide 1 of 3)
Non-resident alien income not “effectively connected” with U.S. trade or business
Includes dividends, interest, rents, royalties, certain compensation, premiums, annuities, and other fixed, determinable, annual or periodic (FDAP) income
30% tax generally is withheld by payors of the income
Eliminates problems of assuring payment by nonresidents, determining allowable deductions, and, in most instances, the filing of tax returns by nonresidents
U.S. Taxation of Nonresident Aliens (slide 2 of 3)
Capital gains not effectively connected with the conduct of a U.S. trade or business are exempt from tax, as long as the NRA individual was not present in the United States for 183 days or more during the taxable year
U.S. Taxation of Nonresident Aliens (slide 3 of 3)
Non-resident alien income effectively connected with U.S. trade or business
This income is taxed at the same rates applicable to U.S. citizens