Fixed Determinable, Annual or Periodic ("FDAP) Income Versus Effectively Connected Income ("ECI")

​U.S. source income falls into two main categories: FDAP ("fixed or determinable, annual or period income") and ECI ("effectively connected income"). The U.S. taxes these two categories of income in vastly different manners. FDAP income is taxed at a flat 30% rate on the gross amount (absent a treaty exception) and ECI is taxed at the normal tax rates and deductions and/or credits are permitted. Therefore, it is important to appropriately identify the types of income to ensure proper taxation. We can assist with this analysis and whether there are ways to categorize the income in a more favorable taxing manner.