Glossary
FDAP Income (FDAP)
Definition
FDAP stands for “fixed, determinable, annual or periodical” income. It is U.S.-source passive-type income paid to a foreign person, such as dividends, interest and royalties, and it is generally subject to 30% withholding unless a treaty or exemption reduces it.
What counts as FDAP
FDAP covers many kinds of U.S.-source income that are not connected to a U.S. trade or business. Common examples are dividends, interest (some of which is exempt), rents when no net-basis election is made, royalties and certain other fixed payments.
How it is taxed
FDAP is generally taxed at a flat 30% of the gross amount, with no deductions, and the tax is usually collected by the payer through withholding. A tax treaty or a specific Code exemption may lower or eliminate the rate, but the foreign person normally has to document that with the correct Form W-8.
FDAP versus ECI
If the same income is connected to a U.S. trade or business, it is ECI and taxed on a net basis instead. Capital gains from selling U.S. stock are generally not FDAP for most nonresidents, although exceptions exist.
Practical example
For example, suppose Ana, who lives in Chile, owns shares in a U.S. company that pays her a dividend. The payer would generally withhold tax at 30% unless a W-8BEN supports a lower treaty rate.
General information, not tax advice
This page provides general educational information about U.S. federal tax rules. It is not individualized tax, legal or accounting advice, and it does not create a client relationship. Results depend on each taxpayer's specific facts.
Written by Roger I. Chirino, founder of Chirino USA Accountants & Advisors P.A.
Supported by licensed CPAs, IRS Enrolled Agents (EAs), and experienced U.S. tax professionals focused on cross-border compliance and planning.
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