The U.S. withholding tax rate on income paid to foreign persons is 30% by default, but income tax treaties with roughly 65 countries reduce that rate for residents who qualify. Depending on the treaty partner and the type of income, U.S. withholding tax rates by country can drop to 15%, 10%, 5%, or 0%. The IRS publishes treaty tables that list the exact rate for dividends, interest, royalties, and other categories for every treaty country.
The 30% Default Rate
Sections 1441 and 1442 of the Internal Revenue Code require anyone paying U.S.-source income to a nonresident alien or foreign corporation to withhold 30% before sending the rest abroad.1Office of the Law Revision Counsel. 26 U.S. Code 1441 – Withholding of Tax on Nonresident Aliens2Office of the Law Revision Counsel. 26 USC 1442 – Withholding of Tax on Foreign Corporations The income caught by this flat rate is called FDAP, short for Fixed, Determinable, Annual, or Periodical. In practical terms, FDAP covers the passive income flowing out of the country: dividends, interest, royalties, rents, annuities, and similar payments.
If no treaty applies and no domestic exemption fits, 30% is the number. Residents of countries without a U.S. income tax treaty get no relief. Brazil, for example, has no treaty with the United States, so Brazilian residents face the full 30% on dividends, royalties, and non-exempt interest. The same holds for most Southeast Asian countries that lack a treaty relationship.
How Treaty Rates Vary by Country and Income Type
The U.S. has income tax treaties with dozens of countries, and those agreements override the 30% default for residents who qualify. The IRS treaty tables set out the reduced rate for each country and income category.3Internal Revenue Service. Tax Treaty Tables The differences between countries, and between income types within a single treaty, can be large.
Under the U.S.–UK treaty, portfolio dividends are capped at 15%, and dividends paid to a parent company that owns at least 10% of the voting stock drop to 5%. Under the U.S.–Japan treaty, portfolio dividends are capped at 10%, direct-investment dividends at 5%, and royalties are reduced to 0%.4Internal Revenue Service. United States – Japan Income Tax Convention Some treaties eliminate withholding on interest entirely for qualifying recipients such as banks and pension funds. The gap between a 0% treaty rate on royalties and the 30% statutory default is the kind of spread that drives careful attention to treaty eligibility.
Dividends
Payments by U.S. corporations to foreign shareholders are classic FDAP and face the 30% rate unless a treaty applies. Most treaties set two dividend rates: a lower rate (commonly 5%) for corporate shareholders that own a threshold percentage of the payer, and a higher rate (commonly 10% or 15%) for portfolio investors.
Interest
Some interest is exempt from U.S. withholding under domestic law regardless of treaty status. Bank deposit interest and portfolio interest paid on qualifying debt obligations are not taxed when received by nonresident aliens.5Internal Revenue Service. Nontaxable Types of Interest Income for Nonresident Aliens6Office of the Law Revision Counsel. 26 USC 871 – Tax on Nonresident Alien Individuals Portfolio interest is defined broadly enough to cover most registered bonds and notes, provided the foreign holder owns less than 10% of the issuing company’s voting stock. For interest that doesn’t qualify, treaty rates commonly reduce the tax to 10%, and sometimes to 0%.
Royalties
Payments for the use of U.S. patents, copyrights, trademarks, and similar intellectual property are subject to the 30% rate by default. Royalties are one of the income types where treaties do the most work, with common reduced rates of 10%, 5%, and 0%.
Scholarships and Fellowship Grants
The default rate is 30%, but it drops to 14% for nonresident aliens temporarily in the U.S. on an F, J, M, or Q visa when the amounts relate to a qualifying scholarship or certain grants.7Internal Revenue Service. Withholding Federal Income Tax on Scholarships, Fellowships and Grants Paid to Nonresident Aliens
Income That Falls Outside the Flat Rate
Not every payment to a foreign person runs through the 30% FDAP system, and knowing what sits outside it prevents applying the wrong rule.
Effectively connected income. When a nonresident alien earns income that is effectively connected with a U.S. trade or business, the flat withholding rate does not apply. That income is taxed at graduated rates, the same brackets that apply to U.S. citizens, and the foreign person can claim deductions against it.8Internal Revenue Service. Effectively Connected Income (ECI) A foreign consultant performing services in the U.S. for several months would typically fall on this side of the line.
Real property sales. When a foreign person sells U.S. real estate, a separate regime under the Foreign Investment in Real Property Tax Act applies. The buyer must withhold 15% of the total sale price and remit it to the IRS.9Office of the Law Revision Counsel. 26 U.S. Code 1445 – Withholding of Tax on Dispositions of United States Real Property Interests This is 15% of the gross amount realized, not of the profit. Two exceptions exist for personal residences: no FIRPTA withholding is required if the buyer intends to use the property as their home and the price is $300,000 or less; the rate drops to 10% if the buyer plans to use it as a residence and the price is between $300,001 and $1,000,000.10Internal Revenue Service. FIRPTA Withholding Above $1,000,000, the full 15% applies regardless of intended use. Foreign sellers who expect the withholding to exceed their actual tax can apply for a reduced withholding certificate on Form 8288-B before closing, though IRS review can take several months.
FATCA. A separate 30% withholding regime under Chapter 4 targets foreign financial institutions and certain non-financial entities that fail to report information about U.S. account holders.11Internal Revenue Service. Tax Withholding Types FATCA sits alongside the treaty-based rules rather than replacing them, and both can apply to the same payment. Most large foreign banks are compliant, so the FATCA rate rarely lands on payments to established institutions.
How a Foreign Recipient Claims the Reduced Rate
A qualifying treaty rate does not apply automatically. The foreign payee must give the withholding agent the right documentation before payment, or the agent will withhold the full 30%. The main forms are the W-8BEN for individuals and the W-8BEN-E for entities.12Internal Revenue Service. About Form W-8 BEN-E, Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities) Both require the payee’s name, permanent residence address, and a taxpayer identification number, and both require the payee to cite the specific treaty article that supports the reduced rate.
The taxpayer identification number is where claims often stall. To claim most treaty benefits, a foreign individual must supply either a foreign tax identification number issued by their home country or a U.S. Individual Taxpayer Identification Number (ITIN).13Internal Revenue Service. Instructions for Form W-8BEN Dividends and interest from publicly traded securities and mutual fund distributions are an exception, and no ITIN is required for those. For most other income, missing or invalid identification means the agent applies 30%.
A W-8BEN is valid from the date signed through the last day of the third calendar year after signing. A form signed on March 15, 2026 stays valid through December 31, 2029.13Internal Revenue Service. Instructions for Form W-8BEN If anything on the form changes, such as a move to a different country, the payee must notify the agent and submit a new form within 30 days. The agent keeps these forms on file to support the reduced rate under audit; they are not sent to the IRS.
Limitation on Benefits
Every modern U.S. treaty includes a Limitation on Benefits provision that blocks treaty shopping. A resident of a non-treaty country cannot simply route payments through a shell entity in a treaty country to claim the lower rate. The claimant must show a real connection to the treaty country, through residency, business activity, ownership structure, or a combination. The W-8 forms include certifications on this point that the payee signs under penalty of perjury.
Where to Look Up the Rate for a Specific Country
Two IRS publications carry the actual numbers. Publication 515 sets out withholding rates organized by country and income type. Publication 901 explains the specific treaty articles that authorize each reduced rate.14Internal Revenue Service. About Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities15Internal Revenue Service. About Publication 901, U.S. Tax Treaties The IRS treaty tables online consolidate the same information in a lookup format.3Internal Revenue Service. Tax Treaty Tables For any specific payment, check the country, then the income category, then the treaty article the payee is claiming under. The rate you’ll apply lives at the intersection of those three.