What Is FDAP Income?

The United States generally taxes nonresident aliens and foreign corporations on their U.S.-source income.  A foreign taxpayer’s U.S.-source income falls into one of two general categories: (i) “fixed or determinable annual or periodical gains, profits, and income” (“FDAP income”) or (ii) income that is “effectively connected” with the conduct of a U.S. trade or business (“ECI”).  In this post, we focus on the taxation of FDAP income.

A non-U.S. person is generally taxed on a gross basis and at a 30-percent rate on U.S.-source FDAP income, which is subject to withholding.  In many cases, however, FDAP income is subject to a reduced rate of tax, or entirely exempt from tax, under the Code or a bilateral income tax treaty.

What is FDAP Income? 

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