The U.S. classifies foreign individuals as either nonresident aliens or resident aliens. A nonresident alien is taxed only on U.S.-source income. Some forms of passive income received by nonresidents, such as dividends or certain types of interest, are subject to a flat withholding rate, which may be reduced under an applicable tax treaty. Nonresidents are generally not taxed on capital gains from the sale of U.S. stock unless they spend a substantial amount of time in the country or the income is effectively connected with a U.S. trade or business. 

A foreign investor who qualifies as a resident alien for tax purposes is taxed by the U.S. on worldwide income. The type of business entity selected also impacts tax treatment. For example, if a C-corporation is used, the business pays U.S. corporate tax on income, and dividends distributed to the foreign owner may be subject to withholding. Foreign owners should also be aware of U.S. estate and gift tax obligations. They may be required to file IRS forms such as Form 1040NR or Form 5472/5471. Foreign investors should consult cross-border tax professionals to structure their investments in a tax-efficient manner.