Royalties |
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In general, you must withhold tax on the payment of royalties from sources in the United States on payments made to foreign persons. However, certain types of royalties are given reduced rates or exemptions under some tax treaties. Accordingly, these different types of royalties are treated as separate categories for withholding purposes.
Industrial royalties (Income Code 10)
This category of income includes royalties for the use of, or the right to use, patents, trademarks, secret processes and formulas, goodwill, franchises, "know-how," and similar rights and intangibles. It also may include rents for the use or lease of personal property. Under certain tax treaties, different rates may apply to royalties for information concerning industrial, commercial, and scientific know-how.
Motion picture or television copyright royalties (Income Code 11)
This category refers to royalties paid for the use of motion picture and television copyrights.
Other royalties (e.g., copyright, recording, publishing) (Income Code 12)
This category refers to the royalties paid for the use of copyrights on books, periodicals, articles, etc., except motion picture and television copyrights. Refer to Real Property Income and Natural Resources Royalties (Income Code 13) for information on natural resource royalties.
Real Property Income and Natural Resources Royalties (Income Code 13)
You must withhold tax on income (such as rents and royalties) from real property located in the United States and held for the production of income, unless the foreign payee elects to treat this income as effectively connected with a U.S. trade or business. If the foreign payee chooses to treat this income as effectively connected, the payee must give you Form W-8ECI (discussed earlier). This real property income includes royalties from mines, wells, or other natural deposits, as well as ordinary rents for the use of real property. For withholding that applies to the disposition of U.S. real property interests, see FIRPTA Withholding.
Refer to Table 1 of Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities for more information.
References/Related Topics
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Page Last Reviewed or Updated: October 16, 2008