Foreign Persons Withholding

Withholding on Payments of U.S. Source Income to Foreign Persons Under IRC 1441 to 1443 (Form 1042)

Generally, a foreign person is subject to U.S. tax on its U.S. source income. Most types of U.S. source income received by a foreign person are subject to U.S. tax of 30%. A reduced rate, including exemption, may apply if an Internal Revenue Code Section provides for a lower rate, or there is a tax treaty between the foreign person's country of residence and the United States. The tax is generally withheld (NRA withholding) from the payment made to the foreign person.

The term NRA withholding is used in this area descriptively to refer to withholding required under sections 1441, 1442, and 1443 of the Internal Revenue Code. Generally, NRA withholding describes the withholding regime that requires 30% withholding on a payment of U.S. source income and the filing of Form 1042 and related Form 1042-S. Payments to all foreign persons, including nonresident alien individuals, foreign entities and governments, may be subject to NRA withholding

In referring to NRA withholding in this area, it does not include withholding done under section 1445 of the Internal Revenue Code, dealing with Withholding of Tax on Dispositions of U.S. Real Property Interests (FIRPTA), or under section 1446 of the Internal Revenue Code, dealing with Withholding Tax on Foreign Partners’ Share of Effectively Connected Income (Partnership Withholding) or withholding under section 1446(f) on disposition of certain partnership interests.

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