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FDAP Income Explained

FDAP (Fixed, Determinable, Annual, or Periodical) is US-source passive income subject to 30% default withholding by US payers. Wyoming LLC owners can reduce this to treaty rates via Form W-8BEN-E.

Answer

FDAP is US-source passive income under IRC Section 1441 subject to 30% default withholding by the US payer. Examples include US dividends, US royalties, US interest, US rent, and certain US-source services income. Most non-resident Wyoming LLC operators have minimal FDAP because their LLC revenue is operating business income, not passive. Where FDAP does apply, Form W-8BEN-E claims treaty benefits to reduce withholding to 0% to 15% depending on country.

By Zawwad, Founder & CEO, WyomingLLC by Topslice LLC.

Last updated May 20, 2026

Examples of FDAP

  • Dividends from US corporations
  • Royalties from US licensees (book royalties, music royalties, patent licensing)
  • Interest on US securities
  • Rent from US real estate (gross election; net election available under Section 871(d))
  • Annuities, certain pension payments
  • Some forms of US-source services income (rare for operating businesses)

Not FDAP

  • Sales of inventory (goods)
  • Operating business income paid for services performed outside the US
  • Capital gains on US stocks (taxed differently)
  • Salary or wages (separate withholding rules)

How withholding works

  1. US payer determines income is FDAP
  2. Default 30% withholding applies unless Form W-8BEN-E filed
  3. W-8BEN-E claims treaty rate (often 0% to 15%)
  4. Payer applies treaty rate and remits balance to you
  5. Payer files Form 1042 + 1042-S summarizing withholding
  6. You receive 1042-S showing income and withholding

Frequently asked questions

What is FDAP?
Fixed, Determinable, Annual, or Periodical income. US-source passive income subject to 30% default withholding.
Is my Stripe payout FDAP?
Most Stripe payouts to non-residents for goods or services performed outside the US are NOT FDAP. Stripe withholds only if your situation triggers FDAP.
Can I reduce FDAP withholding?
Yes via Form W-8BEN-E claiming treaty benefits. Treaty rates often 0% to 15% on dividends, interest, royalties.
Is sales of goods FDAP?
No. Sale of goods (inventory) is not FDAP.

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