Withholding
of Taxes
In general, all persons who pay certain items of US source
gross income to foreign persons must withhold tax at 30 percent
or lower treaty rate, if applicable. The items subject to
withholding are interest, dividends, rent, salaries, wages,
premiums, annuities, compensation or other fixed or determinable
annual or periodical gains, profit and income. As discussed
above, withholding is generally required on the disposition
of US real property interests (i.e., FIRPTA withholding).
However, gross income from foreign sources and a foreign corporation's receipt of effectively connected business income from US sources are not subject to withholding.
US and foreign partnerships are required to withhold and
remit tax on income effectively connected with a US trade
or business that is allocated to foreign partners based on
the partnership agreement. The withholding tax, which is
35 percent for corporate partners and non-corporate partners,
must be paid in quarterly instalments based on the estimated
payment rules to applicable to corporations. A safe harbour
is provided based on the prior year's effectively connected
income (ECI).
All partnerships with foreign partners and US ECI are required
to file annual withholding returns to report the amount of
ECI allocable to the foreign partners and the amount of withholding
paid on their behalf.
Publicly traded partnerships may elect to make withholding
payments on ECI under the above rules. Publicly traded partnerships
are required to withhold 35 percent on all distributions
made to foreign partners. Annual withholding reports are
also required to be filed by publicly traded partnerships
to report withholding from distributions.
Disclaimer
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"The
information contained herein is of a general nature and
is not intended to address the circumstances of any particular individual
or entity. Although we endeavor to provide accurate and
timely information, there can be no guarantee that such information
is accurate as of the date it is received or that it
will continue to be accurate in the future. No one should act on such information
without appropriate professional advice after a thorough
examination
of the particular situation.
KPMG and the KPMG logo are registered trademarks of KPMG
International, a Swiss cooperative.
© 2006 KPMG LLP, the
Canadian member firm of KPMG International,
a Swiss cooperative. All rights
reserved."
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