Effectively Connected Income
Also called ECI
Income from a U.S. trade or business taxed at graduated rates after deductions, rather than the flat 30% FDAP withholding.
In full
Effectively Connected Income (ECI) is income earned by a foreign person that is attributable to the conduct of a U.S. trade or business. Unlike FDAP income — which is taxed at a flat 30% (or treaty-reduced) rate on the gross amount — ECI is taxed at graduated corporate or individual rates on net income after deductions. Classification turns on the facts of the business itself: whether there is a dependent agent, a fixed place of business, and how the underlying assets and activities are actually used.
Governed by: U.S. trade or business rules.
This definition is general information about how the term is used in U.S. cross-border tax. It is not advice, and how it applies depends on your own facts and on the treaty, if any, in force with your country.
Related terms
- FDAPU.S.-source passive income subject to 30% withholding at source (reducible by treaty) — dividends, interest, royalties, certain service income.
- Permanent EstablishmentA fixed place of business or dependent agent creating jurisdiction to tax under a bilateral tax treaty.
- U.S. Trade or BusinessThe factual threshold determining whether a foreign person's activities create a taxable U.S. presence.
Where this comes up
- Peak Season: What Black Friday to Christmas Does to a Non-Resident Seller's U.S. Tax PositionECI & Exposure
- Selling U.S. Rental Property: Depreciation Recapture ExplainedU.S. Property
- ECI vs. FDAP: The Classification That Decides EverythingECI & Exposure
- Two Different Tests, Two Different AnswersECI & Exposure