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DEDUCTIONS

(1) Business expenses, taxes imposed by a foreign country, losses in trade, bad debts, depreciation, amortization, depletion and loss in inventory are allowed only if and to the extent that they are connected with income arising from a source within the United States.

(2) Interest paid or accrued proportionate to his income from sources within the United States.

(3) Losses incurred in any transaction entered into for profit, or arising from casualty or theft, are confined to transactions and property within the United States.

(4) Contributions or gifts made to domestic corporations or to the vocational rehabilitation fund not in excess of 15 per centum of the taxpayer's net income as computed without the benefit of this paragraph.

CREDITS

For the purpose of the normal tax a non-resident alien individual is entitled to credit dividends from domestic or resident foreign corporations and interest on obligations of the United States.

A personal exemption of $1,000, if single, or $2,000 if the head of a family or a married person living with husband or wife and $200 for each dependent, if such dependent is under 18 years of age or is incapable of self-support because mentally or physically defective, is allowed only if the country of which he is a citizen or subject imposes no income tax or if it imposes an income tax allows a similar exemption or credit for dependents to citizens of the United States not residing in such country.

Q. What deductions and credits are allowed foreign corporations in computing their net income arising from sources within the United States?

A. The same deductions are allowed foreign corporations from their gross income arising from sources within the United States as are allowed to domestic corporations to the extent that such deductions are connected with such gross income

except that interest paid on the corporate indebtedness can only be deducted in the proportion which the amount of its gross income from sources within the United States bears to the amount of its gross income from all sources within and without the United States and that full deduction may be made for taxes imposed by the United States or any of its possessions or by any state, territory, or political subdivision thereof, except taxes for local benefits, and income, war-profits and excess-profits

taxes.

A foreign corporation is also allowed to credit against its net income, before computing the income tax, the amount of any war-profits and excess-profits tax assessed against it for the same taxable year and the amount of non-exempt interest received upon obligations of the United States and bonds of the War Finance Corporation. It is not allowed the specific exemption of $2,000 allowed a domestic corporation.

Q. What exemption is allowed a non-resident alien individual or a foreign corporation, partnership or association, not engaged in business in the United States beneficially owning bonds, notes and certificates of indebtedness of the United States and bonds of the War Finance Corporation?

A. Such securities so held are exempt both as to principal and interest from any and all taxation now or hereafter imposed by the United States, any State, or any of the possessions of the United States, or by any local taxing authority.

Q. Is any tax required to be withheld from income received by foreign corporations from sources within the United States?

A. Yes, in the case of foreign corporations not engaged in trade or business within the United States and not having any office or place of business therein, a tax equal to 10% is required to be withheld from fixed or determinable, annual or periodical income (other than dividends from corporations liable to the income tax, and interest upon corporate bonds containing a tax-free covenant clause) payable to such foreign corporations, and a tax of 2% in the case of interest payable to such foreign

corporations upon bonds or other obligations of domestic or resident foreign corporations containing a so-called tax-free covenant clause.

Q. Is any tax required to be withheld from a foreign resident corporation?

A. No.

Q. Where the owner of securities is unknown to the withholding agent, at what rate is the tax withheld?

A. In all cases where the owner of securities is unknown withholding is required at the highest applicable rate from interest on such bonds or other securities.

Q. What is the rate of tax required to be withheld from income received by a non-resident alien individual from sources within the United States?

A. On fixed or determinable, annual or periodical income such as rents, salaries, interest, etc. (other than dividends from corporations liable to the income tax, and interest upon corporate bonds containing a tax-free covenant clause), a tax of 8% is required to be withheld.

On interest upon corporate bonds containing a tax-free covenant clause, a tax of 2% is required to be withheld.

Q. A non-resident alien employee is entitled under the statute to credit for a personal exemption and for dependents. How may he claim the benefit of such credit against the tax withheld by his employer?

A. By filing a claim for the benefit of such credit with his employer on Form 1115 duly filled out and executed under oath.

Q. If a non-resident alien individual entitled to credit for personal exemption or for dependents or both, does not file the claim referred to in the preceding question and does not file a return of income, will the tax be collected on the basis of his gross income from sources within the United States?

A. Yes.

Q. I am a non-resident alien and receive a salary

from a domestic corporation for services performed by me for said corporation entirely without the United States. Am I subject to a tax on such salary?

A. No. Salary paid to a non-resident alien for services performed in a foreign country is not subject to tax as income from a source within the United States.

Q. Where foreign banks have two accounts with domestic banks, one a deposit account and the other a borrowing account, must the domestic bank deduct the tax from the entire amount of interest credited to the foreign bank or only from the excess of the amount of interest credited to the deposit account over the amount of interest charged upon the borrowing account?

A. The tax is required to be withheld and deducted from the entire amount of interest credited to foreign banks upon their deposits in domestic banks without subtracting therefrom the interest charged by the domestic banks on money advanced or loaned to the foreign banks. If, however, foreign banks file returns of all their income from sources within the United States, the interest charged by domestic banks on the money advanced to them can be deducted in such returns to the extent of the proportion of such interest which the amount of gross income from sources within the United States bears to the amount of their gross income from all sources within and without the United States. The tax withheld will be credited against the total tax computed in the returns and if the tax withheld is in excess of the total tax liability a claim for refund can be filed for the amount overpaid.

Q. If a non-resident alien owns stock in an American corporation which he disposes of by sale in the United States, is the profit derived from such sale taxable as income from sources within the United States?

A. Yes.

Q. Is charter money or freight payments received by a foreign owner in regard to a vessel operated between the United States and foreign ports subject to tax?

A. No, if the non-resident alien receiving the income main

tains no regular agency in the United States and is not doing business in the United States.

Q. I am a non-resident alien and own stock and notes of a corporation organized in the United States, but which does no business and owns no property in the United States. Are the dividends received on such stock and the interest on such notes subject to tax?

No.

MISCELLANEOUS.

Q. Must corporations report to the government the payment of dividends to stockholders?

A. Every corporation subject to the income tax and every personal service corporation must, when required by the Commissioner, render a return under oath of its payments of dividends, stating the name and address of each stockholder, the number of shares owned by him and the amount of dividends paid to him.

Q. Must my broker report to the government concerning my business transactions?

A. Every broker must, when required by the Commissioner file a return showing the names of customers, with such details as to profits, losses or other information as the Commissioner may require.

PAYMENT OF TAXES.

Q. When is the tax payable?

A. The tax is payable in four equal instalments, as follows: 14 at the time fixed by law for filing the return.

14 on the 15th day of the 3rd month.

14 on the 15th day of the 6th month.

14 on the 15th day of the 9th month, after the time fixed by law for filing return.

Where an extension of time for filing a return is granted the time for payment of the first instalment shall be postponed until the date of the expiration of the period of the extension, but the time for payment of the other instalments shall not be postponed unless the Commissioner so provides in granting the extension.

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