Effectively Connected/Non Effectively Connected Income

If a foreign corporation is engaged in a U.S. trade or business, all income, gain, or loss that is derived from sources within the United States, other than certain investment income, is treated as effectively connected income (ECI).

U.S. Source Fixed, Determinable, Annual, Periodical (FDAP) income as well as gain or loss from the sale or exchange of capital assets, can be treated as effectively connected income if the item meets either an asset-use test or a business activities test. For example, interest, rents and royalties may be ECI.

Section II of Form 1120-F is used to compute the taxable income or loss on effectively connected income.

Non-effectively connected income is income not effectively connected with a trade or business in the United States.

Section I of Form 1120-F is used to report gross amounts of taxable income, rate of tax, and tax withheld on income not effectively connected with the conduct of a U.S. trade or business in the United States.

Form 1120-F filers are subject to estimated tax payments if anticipated ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡. Payments will be made using the depository method of payment.