Frequently Asked Questions
US Taxes and Foreign Owned LLCs
What is FDAP Income?
FDAP is the acronym for “Fixed and determined annual or periodic income”.
Income is fixed when it is paid in amounts known ahead of time. Income is determinable whenever there is a basis for figuring the amount to be paid. Income can be periodic if it is paid from time to time. It does not have to be paid annually or at regular intervals. Income can be determinable or periodic, even if the length of time during which the payments are made is increased or decreased.
FDAP income is taxable, even for a sole-member (sole proprietorship) LLC.
The following items are examples of FDAP income:
- Compensation for personal services (such as commissions and gross proceeds from performances)
- Original issue discount
- Pensions and annuities
- Real property income, such as rents, other than gains from the sale of real property
- Scholarships and fellowship grants
- Other grants, prizes and awards
- A sales commission paid or credited monthly
- A commission paid for a single transaction
- The distributable net income of an estate or trust that is FDAP income, and that must be distributed currently, or has been paid or credited during the tax year, to a nonresident alien beneficiary
- A distribution from a partnership that is FDAP income, or such an amount that, although not actually distributed, is includible in the gross income of a foreign partner
- Taxes, mortgage interest, or insurance premiums paid to, or for the account of, a nonresident alien landlord by a tenant under the terms of a lease
- Prizes awarded to nonresident alien artists for pictures exhibited in the United States
- Purses paid to nonresident alien boxers for prize fights in the United States
- Prizes awarded to nonresident alien professional golfers in golfing tournaments in the United States
- Payments to U.S. parties when an nonresident alien entertainer has rights to the performance
It does not include:
- 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