FDAP income
Fixed, determinable, annual, periodical income. US-source passive income subject to flat-rate withholding for non-residents.
Definition
FDAP (Fixed, Determinable, Annual, Periodical) is a US tax classification for US-source passive income paid to non-residents. Examples: royalties, dividends, certain interest, certain rents. Default withholding rate is 30% at source, often reduced by tax treaty.
Context
Distinct from ECI (effectively connected income), which is taxed at graduated rates. FDAP is taxed at a flat rate via withholding; the recipient does not file a US tax return unless other obligations apply.
Example
AdSense revenue paid to a non-resident-owned Delaware LLC is generally FDAP. Default 30% withholding applies; treaty-rate reduction (5-15% for treaty countries) requires W-8BEN-E filing.
Common pitfalls
- Failure to file W-8BEN-E results in default 30% withholding even when treaty rates apply.
- Distinction between FDAP and ECI is fact-specific.