A nonresident alien (NRA) usually is subject to U.S. income tax only on U.S. source income. The general rules for determining U.S. source income that apply to most nonresident aliens are shown below:
A detailed discussion of the general rules is provided in Chapter Two of Publication 519, U.S. Tax Guide for Aliens.
|Item of Income||Factor Determining Source|
|Salaries, wages, other compensation||Where services performed|
|Where services performed|
Sale of inventory -purchased
Sale of inventory -produced
|Where produced (Allocation may be necessary)|
|Interest||Residence of payer|
|Dividends||Whether a U.S. or foreign corporation*|
|Rents||Location of property|
|Location of property|
Patents, copyrights, etc.
|Where property is used|
|Sale of real property||Location of property|
|Sale of personal property||Seller’s tax home (but see Personal Property, in Chapter 2 of Publication 519, for exceptions)|
|Pensions||Where services were performed that earned the pension|
|Scholarships – Fellowships||Generally, the residence of the payer|
|Sale of natural resources||Allocation based on fair market value of product at export terminal. For more information, see IRC section 1.863–1(b) of the regulations.|
a) Dividends paid by a U.S. corporation are foreign source if the corporation elects the Puerto Rico economic activity credit or possessions tax credit.
b) Part of a dividend paid by a foreign corporation is U.S. source if at least 25% of the corporation’s gross income is effectively connected with a U.S. trade or business for the 3 tax years before the year in which the dividends are declared.