I’m a non-U.S. resident who just started earning royalties from a digital product I licensed to a U.S. company. I also get interest from a U.S. bank account and a few dividend payments from some U.S. stocks I hold. A friend mentioned something about “FDAP income” and how it’s taxed differently, but I’m honestly confused. I’m not running a business in the U.S., so I thought I wouldn’t owe much, if anything. Do I really need to pay a 30% tax on this stuff? And what exactly counts as FDAP?
Answer by: abdullah-al-naim
3 months ago
Great question. FDAP income often catches people off guard.
FDAP stands for Fixed, Determinable, Annual, or Periodic income. That’s just a fancy IRS way of saying “passive income” coming from the U.S., like interest, dividends, rent, royalties, and similar sources. If you\’re not actively running a business in the U.S. and just earning from these streams, this is what the IRS is usually referring to.
Now, here’s the part to watch out for:
If your FDAP income isn’t effectively connected to a U.S. trade or business (meaning you’re not actively involved), it’s typically taxed at a flat 30% rate on the gross amount. Yep, no deductions allowed.
But here’s the good news:
If your country has a tax treaty with the U.S., that rate could be much lower, or even zero in some cases. It’s worth checking the treaty list or speaking to a tax pro familiar with your country’s agreement.
So if you\’re receiving U.S.-sourced dividends or royalties while living abroad, you’re likely looking at FDAP. Be sure to plan ahead so you’re not caught off-guard at tax time.
For more details : https://businessglobalizer.com/blog/us-taxation-for-nonresident-alien/
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