In the normal course of your trade or business, you may make payments to persons from outside the United States. If the payments you are making constitute U.S. source income, the payee may be liable for U.S. income tax, and you as the payer may be responsible for withholding U.S. income tax.
When you make payments to a foreign person, a foreign pass-through entity or intermediary, or to a U.S. person acting as agent for a foreign person, you may be responsible for withholding U.S. income taxes on those payments.
Foreign persons, for tax purposes, include nonresident alien individuals, foreign partnerships, foreign corporations, foreign trusts, foreign estates, foreign governments, and international organizations. They are generally subject to U.S. income tax on their U.S. source income. If you pay U.S. source income to a foreign person, you generally have to withhold tax at the rate of 30%. This withholding tax is required under sections 1441, 1442, and 1443 of the Internal Revenue Code, and is referred to as “NRA withholding”, referring to nonresident aliens. Lower withholding rates, or exemptions from withholding, may apply in certain cases, particularly when there is a tax treaty between the United States and the foreign person’s country of residence.