A client of ours (US Company) is arranging to pay for an apartment rental lease in New York. This lease is for two foreign individuals, coming here on non-immigrant business visas (B1/B2). Our client is part of a network of global companies, all held under the umbrella of one foreign corporation. These individuals coming to New York are shareholders/owners of the parent company, so by extension they own our client as well. They will be providing some consulting to the US Company. What documents are needed for this transactions, and how can it be structured, from a tax perspective? We told them that we cannot advise on legal implications, but will provide help with tax and bookkeeping transactions that arise out of this.

ANSWER

The BIDaWIZ Team's Answer:

Keep in mind that foreign owners of a US based corporation (that do not perform any services in the US) are generally still subject to US withholding tax of 30% on dividends, interest and royalties as per IRC Section 881(a). Please note that Foreign entities that perform services in the US have effectively connected income.

The B1/B2 visa is for business visitors. It is not intended for those running a business or receiving payment. That would require a work permit.

We have concerns about payment of an apartment for these shareholders given the fact pattern. In appearance, IMS is performing services in the US and it's owners are being compensated for it. This comes back to the effectively connected income reference we made earlier, it can expand the filing requirements and nexus for IMS. The transaction can be treated as a loan as long as it is repaid and documented as such.

References: IRC Section 881(a)
State: New York, Singapore