Effectively Connected Income (ECI)

Definition

ECI is a core U.S. international tax concept. When a nonresident alien or foreign corporation is engaged in a U.S. trade or business, certain income connected to that activity is generally taxed at graduated or corporate rates after allowable deductions rather than at a flat gross-basis withholding rate.

Examples

• Profit earned by a foreign-owned business operating in the United States can be ECI.
• Certain rental or investment income can be treated as ECI when statutory tests or elections apply.