Page 61 - Akerman | 2016 Guide to Doing Business in Florida

5.1.4 Federal Income Taxation of Foreign Corporations

Foreign corporations generally are subject to United States federal tax in the same manner and
to the same extent as nonresident foreign individuals, described above, although at rates
applicable to corporations.

In addition to the tax imposed on earnings which are effectively connected with a United States
trade or business, foreign corporations which are engaged in a United States trade or business
through a United States branch are also subject to an additional, second-level branch profits
tax. The branch profits tax generally applies to earnings of the United States branch that are
not reinvested in the United States business. It is intended to be a substitute for the
withholding tax that applies to dividends paid to foreign persons and can also apply in cases
where earnings from the conduct of a United States business are not repatriated, but are not
reinvested in the United States business. United States earnings that are not reinvested are
not subject to the branch profits tax if the branch is terminated and several detailed rules are
complied with. Because of the broad scope of the branch profits tax, foreign corporations
frequently conduct United States activities indirectly through United States corporate
subsidiaries. As in the case of the 30% withholding tax, the branch profits tax may be reduced
or eliminated if the foreign taxpayer qualifies for benefits under a tax treaty. The branch profits
tax does not apply to non-corporate taxpayers.

5.1.5 Federal Income Taxation of Unincorporated Businesses or
Branches
Foreign individuals conducting business in the United States as a sole proprietorship are
subject to United States federal income taxation on the income earned from United States
activities, with only one level of United States federal income taxation. In the case of a foreign
corporation conducting a United States business directly through a branch, earnings which are
not reinvested in the business may be subject to an additional branch profits tax, as described
above. The branch profits tax does not apply to natural persons.

5.1.6 Federal Income Taxation of Joint Ventures, Partnerships and
Limited Liability Companies
A partnership (including a general partnership, a limited partnership, a limited liability
partnership, or a limited liability limited partnership) or joint venture conducting business in the
United States generally is required to file income tax returns in the United States reporting its
activities. The partnership or joint venture generally is not obligated to pay United States federal
income taxes with respect to its earnings; instead, each of the partners is responsible for
paying United States federal income taxes with respect to its share of income earned by the
partnership or joint venture, as if such share had been earned directly by the partner, even if
none of the income is distributed to the partners. The branch profits tax may apply to a foreign
corporation’s share of the United States effectively connected income earned by a partnership
or joint venture of which the foreign corporation is a partner. In addition, the partnership or joint
venture is required, on a quarterly basis, to withhold on the effectively connected income
earned by the partnership or joint venture which is allocable to a foreign partner, and remit this
amount to the government as a deposit against the actual United States federal income tax
liability of the foreign partner. The withholding rate generally is the highest United States income
tax rate which could be applicable to the foreign partner. If the income qualifies for a
preferential rate such as the long-term capital gain tax rate applicable to a non-corporate
taxpayer, such tax rate is applied for purposes of calculating the withholding amount.

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