US taxation of foriegn owned buisness

The United States has two regimes for taxing a nonresident alien (NRA) and a non-U.S. corporation (foreign corporation). First, NRAs and foreign corporations (collectively referred to as foreign taxpayers) are generally taxed at a flat 30 percent rate (or lower treaty rate) on gross income from U.S. sources that is fixed or determinable, annual or periodic (FDAP) income. ¹ Second, where an NRA or foreign corporation is engaged in a U.S. trade or business, all U.S.-source income (including capital gains) and certain classes of foreign-source income, that is "effectively connected" with the conduct of such U.S. trade or business, are taxed at regular U.S. rates on the net amount of such income. ² If a U.S. trade or business exists, then all U.S.-source income, other than fixed and determinable or certain capital gains, is deemed to be effectively connected to the U.S. trade or business and is therefore taxed at regular U.S. rates.

NRAs and foreign corporations engaged in a U.S. trade or business are taxed essentially the same as domestic taxpayers, but only on the income that is effectively connected with the conduct of their U.S. trade or business. Provided timely tax returns are filed, foreign corporations are entitled to claim a foreign tax credit.

 Further, a foreign corporation may not be subject to the personal holding company tax, is allowed deductions only to the extent the income taxed is effectively connected with the U.S. business. In addition, timely tax returns (Forms 1040NR and 1120F) must be filed by NRAs and foreign corporations to claim deductions under

A foreign corporation doing business in the United States as an unincorporated operation (i.e., a branch) may also be subject to a branch-level tax of 30 percent (or lower treaty rate) on its earnings and profits effectively connected to its U.S. trade or business.