Foreign companies with US income are taxed up to 30% on these earnings. This includes income from any trade or business in the US or the receipt of any US dividends, interest or royalties.
If your company is doing business in the US or receiving income from the US you will have unique tax obligations and must file a US tax return in order to declare your income and claim any refunds of US tax you have overpaid. See examples by entity type below.
Under the US tax system, special forms have been developed for these purposes. The most common forms are 1042-S, 1099-MISC, and all 1099 forms showing passive income and withholding. Determining whether you need to file a US tax return using one of these forms depends on your income and entity type.
At Taxback.com, we can ensure you meet your US tax return obligations and claim back any overpaid US tax for you. Register for our US tax return service today.
Limited Liability Company (LLC) Example
Cody Jefferson is a UK citizen who owns a Single Member LLC in the UK called Coderson Consulting LLC. The company has been hired to conduct research for US-based corporation Research Inc for $15,000. Once the research was complete, Research Inc. transferred $10,500 to Coderson Consulting LLC's UK Lloyds account as payment. $4,500 was withheld as income tax.
Because Cody is the only company owner of Coderson Consulting LLC and has never been in the US, Cody is required to file a 1040NR income tax return and report his US income and tax. Cody is able to claim under the US-UK income tax treaty and will receive a tax refund of the $4,500 federal taxes withheld.
Jessica and Steven are Irish lawyers who formed a partnership in Ireland called “J. S. & Partners”. They were hired to conduct an international law review for the marketing department of a US-based corporation that intends to invest in Ireland.
J. S. & Partners conducted the review, filed form W-8ECI and billed the US corporation for $26,000 in fees. They have received a full payment of this amount on October 28th.
J. S. & Partners must file a partnership information return with the IRS in the US to report their US income for this work. Jessica and Steven must also each file separate individual income tax return to report their share of this US income.
“Smith-Jones Company” is a foreign corporation based in Honduras. Smith Jones Company bought 100,000 shares of a US Company called BRL Inc. on NYSE. On December 28th BRL Inc. paid dividends to all shareholders and Smith-Jones Company received $28,000 in non-qualified dividends, $3200 in qualified dividends and interest totaling $750. No taxes were deducted at source and the amount received by Smith-Jones Company was $31,950 in total.
Smith-Jones Company is required to file a US foreign corporation tax return because of the US income they received without paying tax. As Honduras has no income tax treaty with the US, Smith-Jones Company will need to pay the US Government $8,525 in income tax.
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