Why Non-U.S. Directors Can Rarely Exempt U.S.-Source Compensation From U.S. Income Tax

This article originally appeared in the May 2025 issue of The Tax Adviser.

Non–U.S. directors who attend board meetings in the U.S. may discover that their temporary presence can create unexpected U.S. tax implications — both for themselves and for the company. The IRS considers directors’ fees to be self–employment income and, when paid to a nonresident alien, such fees will generally be subject to 30% withholding at the source and require the filing of tax reporting forms.

Nonresident aliens have few opportunities under the Internal Revenue Code to exempt U.S.-source compensation from U.S. income tax. Only one provision, the de minimis exception of Sec. 861(a)(3), would generally apply to nonresident alien directors. Given this provision’s history and limitations, however, these directors will often need to rely on an income tax treaty between the U.S. and their home country for potential relief.

BDO’s Amanda Harrell provides details in the full article in The Tax Adviser.