How does taxation of foreign dividends work?

International taxation of foreign dividends in North Carolina works by taxing a nonresident alien on their income from United States sources. Nonresident aliens are subject to taxation on their United States-source income, including dividends. Foreign dividends may be subject to a 30 percent withholding tax rate if they have not been effectively connected with the conduct of a U.S. trade or business, or if the dividends are not considered to be effectively connected with a U.S. trade or business. However, if the foreign dividends are effectively connected with a U.S. trade or business, the withholding tax rate can be reduced to a maximum of 15 percent. Additionally, the foreign dividends may also be eligible for lower withholding tax rates under certain tax treaties that the United States has made with other countries. In North Carolina, foreign dividends are subject to North Carolina income tax to the same extent as if the dividends were earned in the United States. This means that nonresident aliens in North Carolina are liable to pay North Carolina income tax on all foreign dividends they receive, regardless of whether they are effectively connected with a U.S. trade or business or not. In addition, foreign dividends are also subject to the North Carolina franchise tax, which is imposed on companies that do business in North Carolina. In summary, nonresident aliens in North Carolina are subject to both federal and state taxation of foreign dividends. Depending on the source, foreign dividends may be subject to a maximum withholding tax rate of 30 percent, and may be eligible for reduced withholding tax rates under certain tax treaties. Additionally, foreign dividends are subject to North Carolina state income and franchise taxes.

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How does taxation of foreign dividends work?

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