Branch profits tax
A 30% US tax on foreign corporations US branch earnings deemed repatriated to the home office.
Definition
Branch profits tax (IRC § 884) imposes a 30% US tax on foreign corporations US branch earnings deemed repatriated. Default rate is 30%, reduced by applicable tax treaty.
Context
Relevant for foreign corporations operating US branches, not typically for non-resident-owned single-member US LLCs (which are disregarded entities).
Example
A foreign corporation US branch generates $1M of ECI. After US income tax, repatriation to home office triggers 30% branch profits tax (or treaty rate).
Common pitfalls
- Treaty rates reduce but do not eliminate branch profits tax.
- Different from withholding tax on FDAP income.