For non-U.S. resident business owners who run a business in the U.S., taxation might pose a major question. Since taxation is one of many indicators whether the investment in the U.S. is worthwhile, it is essential to understand how the U.S. taxation system approaches non-resident aliens.
In the U.S., citizens are not the only ones that have been paying taxes. In addition to the citizens, “residents” and “non-residents” might be obliged to pay taxes as well, provided they fulfill the required criteria. Therefore, if you are a non-U.S. citizen and have a business operating in the U.S., you might be still liable to pay taxes and to file tax returns.
Basically, whether you have tax responsibilities depends on your residence status and/or how much time you have spend in the U.S. As a result, if you are a;
- green card holder, or
- a holder of nonimmigrant visas who satisfy the substantial presence test,
then you are considered as a resident alien for tax purposes. This classification as resident alien, meeans that you must report all your income from all sources on their U.S. tax return and pay income tax on it at the same rates as U.S. citizens.
Green Card Holders
A green card holder is a person who is a lawful permanent resident of the United States. If you have a green card, you must pay U.S. taxes even if you spend most of your time outside of the country.
Non-immigrant Visa Holders
Non-immigrant visa holders are those entered into the U.S. with the purpose of temporarily visit or stay. Different than green card holders, if a non-immimgrant visa holder satisfies the substantial presence test, that person might be liable for their taxes as well. Please note that there are many exceptions to this test and it would be better to consult with an expert if you have any doubts.
In principle, the reason behind this substantial presence test is to determine whether the non-immigrant visa holder has been physically present in the U.S. substantially. In this connectin, the non-immigrant visa holder must be in the U.S. at least for:
- 31 days during the current year, and
- 183 days during the 3-year period that includes the current year and the two years immediately before that. Please note that only 1/3 of the days you were present in the first year before the current year, and 1/6 of the days you were present in the second year before the current year will be counted.
There are many exemptions to this list. One of the most peculiar one is problably the closer connection exemption. This means that if you:
- are present in the United States for less than 183 days during the current year
- have not applied for a green card
- have a closer connection with a foreign country than with the U.S., and
- maintain a tax home in this foreign country during the year,
you will be exempted from the aforementioned obligations even if you satisfy the general criteria.
In addition to paying taxes, if a non-U.S. resident meets the above-mentioned criteria, the person might be liable for certain taxation obligations, including filing tax returns such Form 1040NR.