Page 60 - Akerman | 2016 Guide to Doing Business in Florida

effectively connected income. United States federal income taxation can even extend to
certain types of foreign source income, if attributable to an office or other fixed place of
business within the United States.

Income earned by foreign individuals from the sale of United States real property interests is
treated as income which is effectively connected with a United States trade or business and
taxed as described above, even if the ownership of the real estate is passive. Subject to
certain exceptions which apply to publicly traded companies, income from the sale of shares of
capital stock in a United States corporation with a majority of its assets invested in United
States real estate is also treated as effectively connected income subject to United States
federal income tax. Gains from disposition of United States real property interests are taxed at
the same rates which apply to United States taxpayers.

Buyers of United States real property interests from foreign sellers generally are required to
withhold 15% of the gross purchase price and remit it to the government as a deposit against
the actual tax liability of the foreign seller unless a reduced withholding amount is requested
and approved by the government. Reduced withholding typically will be approved only if the
15% withholding amount exceeds the maximum United States federal income tax liability the
seller can incur on the transaction.

Except for certain gains from the disposition of United States real property interests described
above, capital gains earned by non-resident foreign individuals from the sale of stocks, bonds
and other securities issued by United States companies are not subject to United States
federal income tax unless they are earned in connection with the conduct of a United States
trade or business.
Certain types of income earned by foreign individuals from sources within the United States
which are not effectively connected with the conduct of a United States trade or business are
subject to a flat 30% withholding tax determined without reference to any deductions. Income
subject to the gross 30% withholding tax generally includes dividends and interest paid by
United States corporations, certain interest paid by United States branches of foreign
corporations, rents and royalties for the use of property located in the United States, and other
fixed or determinable annual or periodic income or gains from United States sources. The 30%
tax must be withheld by the person making the payment and remitted to the government. The
30% withholding tax, however, generally does not apply to interest on bank deposits or to
portfolio interest. Portfolio interest generally includes non-contingent interest on registered
obligations paid to payees who do not own, directly or constructively, 10% or more of the
voting power of the payor. The 30% withholding tax also does not apply with respect to rents
received for the use of United States real property where the lessor makes a special election to
treat the rental income as effectively connected income taxed on a net basis after giving effect
to applicable deductions. Liquidating distributions by United States corporations also are
generally exempt from the 30% withholding tax. The 30% withholding tax may be reduced or
even eliminated in cases where the foreign taxpayer receiving the payments qualifies for
benefits under an income tax treaty between the United States and the taxpayer’s country of
tax residence. Tax treaties differ, and the specific treaty must be consulted.

Many countries have treaties with the United States to avoid double taxation with respect to
income taxes. Persons who are tax residents of treaty countries may benefit from rules which
are more favorable than the general rules which are summarized above. The availability of
treaty benefits and the scope of such benefits should therefore be considered carefully in each
particular case.

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