Tax
FDAP income
FDAP income is fixed, determinable, annual or periodical income from US sources paid to a non-resident, such as interest, dividends, rents and royalties. FDAP income is generally subject to a flat 30% withholding tax at source, which a tax treaty may reduce.
In plain terms: Passive US income like dividends or royalties, taxed by withholding rather than by return.
Why it matters
Founders meet FDAP through royalties or licence fees rather than trading income. The distinction from ECI matters because FDAP is taxed on gross amounts with no deductions, whereas ECI is taxed on net profit.
Read the full guideInternational founders