U.S. Taxation for Non-Resident Aliens
                     U.S. Taxation For  
Non-Resident 
Aliens
PRESENTED 
BY:
Vivek Shah Mansi Shah
US Tax Expert  US Expat Tax Expert  
Managing Partner  Sr. Tax Manager  
@Smart @Smart 
Accountants Accountants
Overview:
Definition Forms in Detail: Corporation
U.S. Tax Treaties
The Source Of Income  
Forms in Detail: Individual  U.S. Tax - Foreign 
Tax treatment for N.R. Alien Students  Gift tax and 
Forms in Detail: Partnership
Estate tax  Buying 
Property in USA
Definition:
An alien is any individual who is not a U.S. citizen or U.S. national. A nonresident alien  is an alien 
who has not passed the Green Card Test or Substantial Presence Test.
Green Card Test:
The test for determining a person’s lawful permanent residency in the United States at any time  
during the calendar year is known as the “Green Card Test”.
 Substantial Presence Test:
To meet this test, a person must be physically present in the United States on at least:
1. 31  days during the current year, and‘
2. 183 days during the 3-year period that includes the current year and the 2 years  immediately 
before that, considering:
 All the days a person was present in the current year, and
 One-Third (1/3) of the days a person was present in the first year before the current year, and
 One – Sixth (1/6) of the days a person in the second year before the current year.
QUESTION
1. Mr. X travelled to USA on H-1 B visa and spent 154 days during 2021 with no 
prior years travel history. He will be considered as :
a. US Tax resident reporting Global Income
b. US Non resident reporting only US source income
c. US resident reporting only US source income
d. US non resident reporting Global Income
The Source Of Income:
There are two types of Sources of Income:
Foreign Source Income U.S. Source Income
●
A non-resident alien is subject to U.S. Income Includes all income received from U.S. ● organizations or individuals and compensation 
tax only on U.S. source income. Foreign-
Sourced income received by non-resident alien received from both U.S. and foreign 
is not subject to U.S taxation. organizations or individuals for work performed 
in the U.S.
Continue…
Summary Of Source Rules for Income of Non-Resident Aliens
Item Of Income Factor Determining Source
 Salaries, wages, other compensation Where services performed
 Business income: Personal Services Where services performed
 Business income: Sale of inventory -      Where sold
purchased
Business income: Sale of inventory -   
Where produced
Produced
Interest
Residence of payer
Dividends
Whether a U.S. or foreign corporation
Rents
Location of property
Continue…
Item Of Income Factor Determining Source
Location of property
Royalties: Natural resources
Where property is used
 Royalties: Patents, copyrights, etc
Sale of real property Location of property
Sale of personal property Seller's tax home
Pensions Where services were performed that earned the pension
Scholarships – Fellowships Generally, the residence of the payer
Sale of natural resources Allocation based on fair market value of product at export terminal. 
QUESTION
2. Foreign resident/US Non resident alien performing personal services from 
foreign country to US employer(Located in US). This will be considered as:
      a. U.S Source of Income
      b. Foreign source of Income
      c.  Both 
      d. None of the above 
U.S. Source Of Income:
There are different types of Forms for Non Resident Individuals and Entities which are as  
follows:
Taxability Which form is Required
For Individual/ Estate & Trust 1040-NR, Form 8804 & 8805
For Partnership Form 8865/Form 1065
For Corporation Form 1120 F
Now, here we explain all above forms in detail:
INDIVIDUAL
FORM- 1040 NR (For Individual)
 A Non-resident Alien who is engaged in a trade or business in the United States or represented a deceased 
person or represented an estate or trust had to file Form 1040-NR. 
There are different Due date for filing 1040 NR:
Type of Persons Due Date Due date for 2 021
A Person who was an employee and 
received wages. 15th April 20XX 18th April 2022
A Person who was an employee and did 
not received wages. 15th June 20XX 15th June 2022
Continue…
Schedule NEC( Form 1040- NR) - Tax on Income Not Effectively Connected 
With a U.S. Trade or Business:
 Include income only to the extent it is a U.S. source and not effectively connected with the  
conduct of a trade or business in the United States.
 Tax must be withheld at the source of income not effectively connected with a U.S. trade  or 
business that is paid to non-resident aliens. The withholding is generally at a 30 %  rate.
 The following list gives only a general idea of the types of income to include on Schedule  NEC:
 Income that is fixed or periodic, such as interest, dividends, rents, salaries, wages,  
premiums, annuities, other compensation, or certain alimony received. Other items of  
income, such as royalties, may also be subject to the 30 %  tax.
 Gains, other than capital gains, from the sale or exchange of patents, copyrights, and  other 
intangible property
 Original issue discount (OID)
 Capital gains in excess of capital losses from U.S. sources during 2021. Include these gains  only 
if you were in the United States at least 183 days during 2021.
 Prizes, awards, and certain gambling winnings, Proceeds from lotteries, raffles, etc., are  
gambling winnings. A person must report the full amount of his winnings unless he is a  
resident of Canada.
Continue…
FORM- 8804 & 8805 (For Individual)  
Form 8804- Annual Return for Partnership Withholding Tax (Section 1446)
Form 8805- Foreign Partner’s Information Statement of Section 1446 withholding Tax
Purpose of Form Section 1446
 A partnership (foreign or domestic) that has income 
effectively connected with a U.S. trade or business 
 Use Forms 8804, 8805, and 8813 to pay and (or income treated as effectively connected) must 
report section 1446 withholding tax based on pay a withholding tax on the effectively connected 
effectively connected taxable income (ECTI) taxable income that is allocable to its foreign 
allocable to foreign partners (as defined in partners. 
section 1446(e))  In most cases, a partnership determines if a partner is 
a foreign partner and the partner's tax classification 
 Use Form 8805 to show the amount of ECTI and based on the withholding certificate provided by the 
the total tax credit allocable to the foreign partner. 
partner for the partnership's tax year.  Currently, the withholding tax rate for effectively 
connected income allocable to non-corporate foreign 
 Foreign partners must attach Form 8805 to their partners is 37%, and 21% for corporate foreign 
U.S. income tax returns to claim a withholding partners.
credit for their shares of the section 1446 tax  Any portion of such income is allocable under section 
withheld by the partnership 704 to a foreign partner
Tax Treatment: Non-Resident Alien
Meaning:  Non-resident aliens are subject to U.S. income tax only on their U.S. source income. They do not  have to 
pay tax on foreign–earned income.
 Non- residents are subject to two different tax rates:
   Effectively Connected Income (ECI)
 Fixed or Determinable, annual or periodic (FDAP) Income
Effectively Connected Income ( ECI) Fixed or Determinable , Annual or Periodic(FDAP) Income
●
● ECI is earned in the U.S. from the operation of a business in the U.S. or is Fixed income means when amounts known ahead of time. 
personal service income earned in the U.S. as wages or self-employment Determinable income means income has a basis for figuring the 
income. It is taxed for a nonresident at the same rates as for a U.S. person amounts to be paid. Periodic Income means paid from time to time.
● Certain kinds of investment income are treated as ECI if they pass either of ● Capital gains from the sale of personal property may also be 
the two following tests: considered FDAP if the Non-Resident Alien has been in the US for 183 
● The Asset Use Test:  The Income must be associated with U.S. assets used days or more in the tax year.
in, or held for use in the conduct of a U.S. trade or business. ● U.S. Source FDAP income includes 85% of any Social Security benefit. 
● Business Activities Test: The activities of that trade or business  conducted This income is exempt under some tax treaties.
in the United States are a  material factor in the realization of the income ● FDAP is considered passive income and is taxed at a flat 30% rate.
PARTNERSHIP
FORM- 8865 – Return of U.S Persons With Respect to Certain Foreign Partnership
Meaning:
 U.S. person who controlled the foreign partnership at any time during the partnership's tax year.
 There are four major categories of tax filers to complete the form and the requirements are different for each 
group. 
Category 1—Any U.S. Person who controlled a foreign partnership during the tax year more than 50% interest..
Category 2—Any U.S. Person who owned more than 10% of a foreign partnership.
Category 3¬ Any U.S. Person who contributed property to a foreign partnership in exchange for an interest in the partnership.
Category 4—Any U.S. Person who had a reportable event during their tax year under section 6046A.
Continue…
FORM- 1065 – U.S Return of Partnership 
Income
 Income from U.S. Sources may require a foreign partnership to file a Form 1065 in a tax 
 year where:
A. The partnership has gross income derived from sources within the United States,
OR
B. Gross income connected with a trade or business conducted in the U.S. Partnerships  that are 
organized outside of the U.S. but have passive U.S. investments and are,  therefore, required 
to file a Form 1065 and issue K-1s to the U.S. partners.
CORPORATION
Form 1120 – F ( U.S Income Tax Return of a  Foreign Corporation)
Meaning: - Foreign Companies Doing Business in the United States:
 A foreign corporation may establish a branch or Subsidiary company within the US to  conduct 
its business activities even though most foreign corporations choose to form  subsidiary 
companies for tax and nontax reasons.
 Most countries have the ability to subject foreign corporations to domestic taxation if they  
form a branch, open an office, employ staff, maintain inventory or fixed assets or otherwise  
conduct business activities in the U.S. which enables the Federal and state taxing  
administration to assess the foreign corporation as though it had a deemed permanent  
establishment.
 Doing business in the USA by foreign companies so, they have to fill Form-1120F i.e. U.S  
Income tax Return of a Foreign Corporation.
Continue…
Who Must File?
 Who was engaged in a trade or business in the United States, whether or not it had U.S.  
source income from that trade or business, and whether or not income from such trade  or 
business is exempt from U.S. tax under a tax treaty.
Place Of Office Or Business Due Date Due Date for 2021
Foreign Corporation with an Office or 
Place of  Business in the United States: 15th April 18th April 2022
20XX
Foreign Corporation with No Office or 15th June 20XX 15th June 2022
Place of  Business in the United State
BRANCH  PROFIIT  TAX
26 U.S. Code § 884 - Branch profits tax
Imposition of Tax
In addition to the tax imposed by section 882 for any 
Meaning taxable year, there is hereby imposed on any foreign 
The branch profits tax is a branch-level tax on the corporation a tax equal to 30 percent of the 
repatriation of earnings, in the form of dividends, dividend equivalent amount for the taxable year.
from a foreign corporation''s branch in the United Dividend Equivalent Amount
States to the home office in the foreign country. 
The tax is also applied to excess interest on US For purposes of subsection (a), the term “dividend 
effectively connected income. equivalent amount” means the foreign corporation’s 
effectively connected earnings and profits for the 
taxable year. 
QUESTION
3. What is Branch Profit Tax Rate ?     
a.  21%
b.  30%
c.  37%
d. 15%
Withholding Of Foreign Person
 After the withholding occurs, foreign investors generally do not incur further U.S. tax obligations.
 Withholding is necessary because it is the only way to guarantee tax collection from foreign persons. 
 A payee is subject to withholding only if it is a foreign person. A foreign person includes a nonresident alien 
individual, foreign corporation, foreign partnership, foreign trust, foreign estate, and any other person that is 
not a U.S. person. It also includes a foreign branch of a U.S. financial institution if the foreign branch is a QI.
 So, the gross income and withheld taxes must be reported on Form 1042-S (Foreign Persons U.S. Source 
Income Subject to Withholding) to the IRS.
 The payor must also submit Form 1042 (Annual Withholding Tax Return for U.S. Source Income of Foreign 
Persons) by March 15
United States Tax Treaties With 
Various Countries
 The United States has tax treaties with a number of foreign countries. Under these  treaties, 
residents (not necessarily citizens) of foreign countries are taxed at a  reduced rate or are exempt 
from U.S. taxes on certain items of income they receive  from sources within the United States.
 So, we have to claim benefits of treaties we have to file Form 8233 (Exemption  From Withholding 
on Compensation for Independent (and Certain Dependent)  Personal Services of a Nonresident Alien 
Individual)
The name of countries with which the United States has tax treaties are as follows:
      Armenia Cyprus India Malta Romania Trinidad
Australia Czech Republic Indonesia Mexico Russia Tunisia
Austria Denmark Israel Moldova Slovak Republic Turkey
Azerbaijan Egypt Italy Morocco Slovenia Turkmenistan
Bangladesh Estonia Jamaica Netherlands South Africa Ukraine
Barbados Finland Japan New Zealand Spain Union of Soviet 
Socialist Republics
Belarus France Kazakhstan Norway Sri Lanka United Kingdom
Belgium Georgia Korea Pakistan Sweden United States Model
Bulgaria Germany Kyrgyzstan Philippines Switzerland Uzbekistan
Canada Greece Latvia Poland Tajikistan Venezuela
China Iceland Lithuania Portugal Thailand
Treaty Position form for claiming Exemption for Non- Resident Aliens:
Types of FORM Meaning/ Who must file Due Date for 2021
 The form helps a person claim a  
 The W-8 BEN is an IRS reduction or an exemption from  the 
Form W-8 BEN mandated form to collect U.S. tax withholding if a  person reside in a country with  which the United 
Non-resident Alien (NRA) States has an  income tax treaty and 
taxpayer information for the  income a person received is  
INDIVIDUAL. subject to that treaty.
 Form W-8 BEN E is an IRS  Foreign businesses is withheld 
Form W-8 BEN –E mandated form to collect at  a 30% rate by the payer or  
the information for withholding agent in the 
ENTITIES United  States
QUESTION
4. Which Form is used to claim treaty-based Exemption?
    a. Form 1042
    b. Form 8233
    c. Form W-8 BEN
    d. Form W-8 BEN E
U.S TAXATION ON FOREIGN STUDENTS
 All foreign students are required to file a return with the Internal Revenue Service (IRS) each year  they are in the 
United States.
 The federal and state tax returns are required for those who earn income and the non-employed  federal form 
for those who did not earn income.
 But, as per the US Internal Revenue Service (IRS), a foreign student temporarily present in the US  under an “F," “J," 
“M," or “Q" visa who substantially complies with the requirements of the visa is  considered as an “Exempt 
individual" for US tax purposes.
 Generally IRS regulations require that 14 percent of non-qualified scholarship and fellowship  payments paid to F, 
J, Q, or M visa holders be withheld as federal income tax unless a person is a  resident of a country with which the 
United States has an applicable income tax treaty.
 Receipt of fellowship/scholarship grant is considered as income effectively connected with the  conduct of trade 
or business in the US and may be taxable at the normal graduated tax rates as  applicable to the US citizens.
 It is important to note that the payment a foreign student receives as a scholarship or fellowship  grant will be 
taxable or not would depend on whether the grant is US-source or foreign-source  income.
QUESTION
5. Foreign Student living full year in USA and Earning U.S Income require to file 
U.S. return?
a. Yes , Form 1040
b. Yes, Form 1040 – NR
c. Yes, 1040 or 1040-NR based on election
d. No filing requirements as students are exempt
Gift Tax & Estate Tax Applicable To 
Non-Resident Aliens
 Donors who are nonresidents not citizens of the United States are subject to gift taxes for gifts  made of real 
and tangible property situated in the United States. However, gifts of U.S. situated  intangible property are 
not subject to the gift tax.
 For nonresident, Non-U.S. citizens (nonresident aliens), the estate and gift tax applies at a  
minimum to property that exists within the U.S. This includes all tangible and intangible assets  that physically 
exist within the U.S. or is “effectively connected” with a trade or business in the U.S. 
  Nonresident aliens are entitled to the $15,000 annual gift tax exclusion available to U.S. citizens  and 
residents.
 The annual gift tax exclusion for gifts made to a non-U.S. citizen spouse increased to $100,000.  Since 2002, this 
annual exclusion has increased each year and in 2021 the exclusion is $159,000.
 Nonresident aliens receive only a $60,000 exemption from U.S. estate tax, which is equivalent to a $13,000 
unified credit and this credit can be set-off against Estate Tax only.
Non-Resident Aliens Buying Property 
In U.S.A
 Non-US citizens can buy property since there is no citizenship requirement for real  estate sales.
 The Foreign Investment in Real Property Tax Act (FIRPTA) of 1980 was enacted by  Congress to impose 
a tax on foreign persons when they sell or receive income from  a US real property interest.
 In general, income from real property located in the US that is owned by a  nonresident alien is 
taxed at a 30% (or lower treaty) rate if it is not effectively  connected with a US trade or business.
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