XI.  Doing Business In The USA

When does a non-US incorporated company have to file regular US tax returns, that is form 1120F?

A corporation not doing business in the USA is taxed at 30% on its US source income. That is, income not effectively connected with a US trade or business (e.g., interest, dividends, rents, salaries, premiums, annuities, and other fixed and determinable income). This is the simple version and the actual rules are rather more complex.

There is an exclusion for portfolio interest and bank deposit interest.

For a corporation with taxable income from a US trade or business, tax is payable at regular rates or at the additional 30% branch profits tax rate.

This includes:

• Sales of goods through an agent
• Exporting goods from the USA with activities in the USA that included the solicitation of orders, inspection of merchandise, making of purchases, completion of sales, maintenance of an office or bank account.
• Personal services in the USA (by a non resident alien) is generally regarded as a trade or business, unless it is for less than 90 days and for less than $3,000.

US source income is treated as effectively connected with a US trade or business, whereas, non US source income is not so treated. Generally, if the company has a place of business in the USA and derives sales from the USA, it is very likely to be subject to US taxation on the US source income. However, if a foreign office materially participates in the sale and the goods do not enter the USA, the sale may be excluded from US taxation.

Keep it simple! Try not to have a place of business in the USA. If it is unavoidable, then file a tax return excluding all non-US source income.