I own a website and I sell digital content. I'm a non-resident alien with the US. Most of my customers are US based so I was wondering...
Will I have to pay any taxes to the US?
I have read that “For nonresidents, taxable income is separated into two categories:
Is this true and do I belong to any of these categories?
If I form an LLC or C corp am I liable for this withholding tax?
My customers are based in the US and I believe all income is considered FDAP income according to the IRS:
“Fixed, Determinable, Annual, or Periodical (FDAP) income is all income, except: • Gains derived from the sale of real or personal property (including market discount and option premiums, but not including original issue discount) • Items of income excluded from gross income, without regard to the U.S. or foreign status of the owner of the income, such as tax-exempt municipal bond interest and qualified scholarship income”
The thing is the IRS also says:
“Effectively Connected Income, after allowable deductions, is taxed at graduated rates. These are the same rates that apply to U.S. citizens and residents. FDAP income generally consists of passive investment income; however, in theory, it could consist of almost any sort of income. FDAP income is taxed at a flat 30 percent (or lower treaty rate) and no deductions are allowed against such income. Effectively Connected Income should be reported on page one of Form 1040NR. FDAP income should be reported on page four of Form 1040NR.”
In the last quote It’s like they say it only applies to passive income but if they feel like it, they can apply this to all income??
I talked to a US accountant and he said:
"FDAP: fixed or determinable annual or periodical income is subject to withholding at a 30% flat rate. This is a FLAT TAX on GROSS INCOME (with NO deductions that come into play). This is designed for a U.S. entity that is involved in a “holding” or “passive” type activity in the U.S."
Unfortunately the accountant has no experience outside the US so I still don't know what to do.
You may want to have a look at
http://www.investopedia.com/terms/n/nonresidentalien.asp Generally - if you are NOT in the US, and sell to the US, then you do not pay taxes in the US. You pay taxes where your company operates - otherwise every company selling to the US would have to pay income tax in the USA. I can imagine a bankrupt US run by people ignoring their constitution and international law would quite a lot like to tax everyone on the planet - but the US is not there. Yet. So, selling to US customers from outside does not make you liable to anything in the USA, income tax wise.
If I form an LLC or C corp am I liable for this withholding tax?IN THE US?
Yes, because you would be a resident for business. Not you, but a US company, selling to US customers. Sure it is liable for US taxes.
But again, there are a ton of details - and especially when you deal with the IRS it is ALWAYS advisable to ask for professional advice. ESPECIALLY when dealing with taxes. So, do yourself a favor and consult some professionals in this regard.