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| Canadians - Directors of US Companies In the U.S., directors’ fees are taxed as business income. A non-resident director is taxable in the U.S. on the U.S.-source portion of his or her directors’ fees. However, relief under the treaty would be available provided the director did not create a “permanent establishment” (PE) in the U.S. by virtue of his or her responsibilities as a director. Generally speaking, a director is usually not considered to have created a PE in the U.S., and the treaty therefore provides that none of the director’s fees are taxable in the U.S. They may, however, be subject to state taxation. Non-resident directors must file a U.S. Non-Resident Individual tax return reporting their directors’ fees and any treaty exemption available. Any applicable state tax returns must also be filed. The income must also be reported on his or her Canadian personal tax return and will be subject to tax at Canadian graduated rates. A foreign tax credit should be available to offset all or a portion of the tax paid. Company perspective. As business income, tax withholding is not required on directors’ fees; however, they must be reported on Form 1099 or Form 1042s.
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