Federal corporate income tax is 21% for US corporations and for a foreign corporation's income effectively connected with a US business, with state corporate taxes on top. US-source passive income such as dividends, interest and royalties paid to foreign persons is taxed at 30% unless the Code or a treaty reduces it. There is no federal VAT or GST; sales and use taxes are imposed by states and localities. Foreign-owned companies have specific information returns, notably Form 5472, with a $25,000 penalty for failure.
Federal corporate income tax
A US corporation figures federal income tax at 21% of taxable income and files Form 1120 by the 15th day of the 4th month after its year end (the 15th day of the 3rd month for a 30 June year end). Large groups should also check the corporate alternative minimum tax under section 55, which applies to applicable corporations on adjusted financial statement income for tax years beginning after 2022.
The 2025 Form 1120 instructions reflect the One Big Beautiful Bill Act (Public Law 119-21), which amended a range of business and international provisions. Groups modelling US effective tax rates should use current-year instructions rather than older summaries.1234
Foreign corporations operating directly
A foreign corporation that carries on a US trade or business directly, for example through a branch, is taxed on its effectively connected income at the same rates as a US corporation after allowed deductions and files Form 1120-F. The return is due by the 15th day of the 4th month after year end if the corporation has a US office, or the 15th day of the 6th month if it does not.
Gains from US real property interests are treated as effectively connected income, so foreign owners of US real estate are within the US tax net on disposal.567
Withholding on payments abroad
Most US-source fixed or periodic income paid to foreign persons, including interest, dividends, rents and royalties, is taxed at 30% of the gross amount with no deductions, usually by withholding at source. A treaty between the recipient's country of residence and the US can reduce the rate or exempt the income, and the recipient documents its status, typically on Form W-8BEN-E for entities.
The US payer acts as withholding agent and reports amounts withheld on the annual Form 1042. This affects dividends to a foreign parent, intra-group interest and royalties, and should be modelled before cash is repatriated.891011
State taxes, sales tax and foreign-ownership reporting
States levy their own corporate income or franchise taxes, and there is no federal VAT or GST: sales and use taxes are imposed by states and localities, each with its own registration, rates and rules on when an out-of-state seller must collect. A business selling across many states needs a state-by-state review. These state-level points were not confirmed against official sources.
A 25% foreign-owned US corporation, a foreign-owned disregarded LLC and a foreign corporation with a US business must file Form 5472 on transactions with related parties. Failure to file, or to keep the required records, carries a $25,000 penalty per reporting corporation, with further penalties if the failure continues after IRS notice.1213
| Item | Federal rule | Applies to |
|---|---|---|
| Corporate income tax | 21% of taxable income | US corporations; foreign corporations on effectively connected income |
| Corporate alternative minimum tax | Based on adjusted financial statement income (Form 4626) | Applicable corporations, tax years beginning after 2022 |
| Withholding on FDAP income | 30% of gross, or lower treaty rate | Interest, dividends, rents, royalties and similar US-source income paid to foreign persons |
| Form 1120 due date | 15th day of 4th month after year end | US corporations (30 June year end: 3rd month) |
| Form 1120-F due date | 15th day of 4th month (US office) or 6th month (no US office) | Foreign corporations |
| Form 5472 penalty | $25,000 per reporting corporation, plus continuation penalties | 25% foreign-owned US corporations, foreign-owned disregarded entities, foreign corporations with a US business |
Documents usually needed
- Form 1120 (US corporation) or Form 1120-F (foreign corporation)
- Form 5472 for related-party transactions (with a pro forma Form 1120 for a foreign-owned disregarded entity)
- Form W-8BEN-E from foreign recipients of US-source payments
- Form 1042 annual withholding return
- State corporate income or franchise tax returns and sales tax registrations, as applicable
Common mistakes
- Not filing Form 5472 for a single-member LLC owned by a foreign parent because the LLC itself pays no federal income tax.
- Applying a treaty rate to dividends, interest or royalties without valid documentation from the recipient.
- Treating the absence of a federal VAT as meaning no indirect tax: state and local sales tax obligations can arise in many states.
- Budgeting only the 21% federal rate and leaving out state corporate taxes.
- Using the Form 1120 deadline for a branch without a US office, whose Form 1120-F is due two months later, or vice versa.
When the business crosses borders
- Treaty relief on withholding depends on the specific treaty and the recipient meeting its conditions.
- Transfer pricing between the US entity and the group should be documented; related-party flows are disclosed on Form 5472.
- Global minimum tax (Pillar Two): the US position and how US-parented and foreign-parented groups are treated was not confirmed and should be checked against current OECD and Treasury statements.
- Changes made by Public Law 119-21 affect international provisions; confirm current rules before modelling repatriation.
Questions businesses ask
Is there a US VAT?
No federal VAT or GST applies. Sales and use taxes are imposed at state and local level, so registration and collection depend on where you sell. This point was not confirmed against an official source.
What this guide does not yet confirm
These points need checking with a qualified local professional in the United States before you rely on them.
- Branch profits tax (rate and treaty reductions) was not confirmed; the IRS pages opened did not state it.
- US position on Pillar Two global minimum tax rules was not confirmed against an official source.
- Specific international changes under Public Law 119-21 (for example to BEAT, GILTI and FDII) were not extracted.
- State corporate income tax rates, including Delaware's, and state sales tax rules (rates, economic nexus thresholds) were not confirmed; Delaware's treatment of sales tax was not confirmed.
- Transfer pricing documentation and penalty rules (sections 482 and 6662) could not yet be checked.
- CAMT size threshold not confirmed on the page opened.
- Accounting standards and statutory audit or financial statement filing requirements for private companies were not confirmed; SEC requirements for public companies were not researched.
- Form 1042 filing deadline and the US treaty list (IRS A to Z page) could not yet be checked.
Sources and review status
Each statement is numbered to the source it was checked against. We use official sources where we can, and each statement says whether it was checked against an official or a secondary source. Sources last checked on 19 October 2026. None of it has been professionally reviewed yet: it is research checked against official and secondary sources by WONE Global, not legal or tax advice.
US corporations figure federal income tax by multiplying taxable income by 21%. Federal corporate income tax. State and local corporate income or franchise taxes are additional and vary by state.
A corporation must generally file its federal income tax return (Form 1120) by the 15th day of the 4th month after the end of its tax year. Federal. A corporation with a fiscal year ending 30 June files by the 15th day of the 3rd month after year end.
For tax years beginning after 2022, section 55 of the Internal Revenue Code imposes a corporate alternative minimum tax (CAMT) based on the adjusted financial statement income of applicable corporations, determined on Form 4626. Federal. Applies only to applicable corporations; the size threshold was not confirmed on the page opened.
The 2025 Instructions for Form 1120 reflect changes made by Public Law 119-21, commonly known as the One Big Beautiful Bill Act. Federal. Applies to 2025 calendar-year returns and fiscal years beginning in 2025.
The detail of individual changes (for example to international provisions) was not extracted. Effective date given is the enactment date of P.L. 119-21; individual provisions have their own effective dates.
Income of a foreign corporation that is effectively connected with a US trade or business is taxed at the same rates as income of a US corporation, after allowed deductions, and is reported on Form 1120-F. Federal. Applies to foreign corporations operating in the US directly (for example through a branch); also covers US-source FDAP income.
A foreign corporation with a US office or place of business must file Form 1120-F by the 15th day of the 4th month after its tax year ends; one without a US office or place of business has until the 15th day of the 6th month. Federal.
Gains and losses of a foreign person from US real property interests are treated as effectively connected income. Federal tax rule affecting foreign owners of US real estate (FIRPTA).
FIRPTA withholding rates on dispositions were not confirmed.
Fixed, determinable, annual or periodical (FDAP) income from US sources paid to a foreign person, such as interest, dividends, rents and royalties, is taxed at 30% or a lower treaty rate, with no deductions or netting allowed. Federal. Usually collected by withholding at source. A reduced rate or exemption may apply under the Internal Revenue Code or a tax treaty.
Under a US tax treaty, residents of the treaty country receive a reduced tax rate or an exemption from US income tax on certain income they receive from US sources. Federal. Relief depends on the specific treaty and on meeting its conditions.
Foreign entities document their status as beneficial owner for US tax withholding and reporting on Form W-8BEN-E. Federal. Typically requested by US banks and other withholding agents at onboarding and before paying US-source income.
Supported by the form title as linked from the NRA withholding page.
Withholding agents report tax withheld on US-source income paid to foreign persons on Form 1042, an annual withholding tax return. Federal.
Supported by the form title as linked from the NRA withholding page; filing deadlines were not confirmed.
A 25% foreign-owned US corporation, including a foreign-owned US disregarded entity, and a foreign corporation engaged in a US trade or business must file Form 5472 to report reportable transactions with related parties. Federal (section 6038A). A foreign-owned US disregarded entity must file a pro forma Form 1120 with Form 5472 attached even though it has no income tax filing requirement. Exceptions exist and are narrower for disregarded entities.
The penalty for failing to file Form 5472, or to keep the required records, is $25,000 per reporting corporation, with a further $25,000 for each 30-day period the failure continues more than 90 days after IRS notification. Federal. A substantially incomplete Form 5472 counts as a failure to file.
Questions on this topic
11 statements on tax, accounting and reporting in the United States
