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The US Internal Revenue Service (IRS) has updated Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, which covers the obligations of the persons responsible for withholding tax (withholding agents).
It is specified that the Publication is for withholding agents who pay income to foreign persons, including nonresident aliens, foreign corporations, foreign partnerships, foreign trusts, foreign estates, foreign governments, and international organizations.
It also describes the types of income subject to withholding, and withholding agents' information return and tax return filing obligations, including those due under the Foreign Account Tax Compliance Act (FATCA).
In most cases, a foreign person is subject to US tax on US-source income. Most types of US-source income received by a foreign person are subject to US tax of 30 percent. A reduced rate, and possibly exemption, may apply if there is a tax treaty between the foreign person's country of residence and the United States. The tax is generally withheld from the payment made to the foreign person.
With regard to the current update of the Publication, the IRS points out to withholding agents that, on June 29, 2015, the Trade Preferences Extension Act was enacted and increased the penalty amounts for failures to file information returns and furnish payee statements. Final and temporary regulations were published in September 2015 to provide guidance regarding dividend equivalent payments made with respect to certain equity derivative contracts.
In addition, the Publication contains sections on the withholding that applies to the treatment of dispositions and distributions of US real property interests, which, the update notes, were subject to substantial changes in the Protecting Americans From Tax Hikes Act of 2015. Some of these changes are effective for dispositions and distributions after December 17, 2015; others are effective for dispositions and distributions after February 16, 2016.
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