Branch Profits Tax Calculator 2026 β Section 884 BPT & DEA
Calculate the US Branch Profits Tax (Section 884) on foreign corporation US branch operations. See the Dividend Equivalent Amount, treaty rate reductions, and branch vs subsidiary comparison.
Branch Income & Assets
$
US source income effectively connected with US business $
US income tax on ECI (usually 21% of ECI) $
Net increase in US assets (reduces DEA). Use 0 if flat or decreasing. %
Current rate is 21% for C-corporations $0
Dividend Equivalent Amount
30%
Effective BPT Rate
$0
Branch Profits Tax
$0
Total US Tax (Corp + BPT)
Branch Profits Tax Calculation
How the Branch Profits Tax is Calculated
Section 884 imposes a 30% tax (subject to treaty reduction) on the Dividend Equivalent Amount (DEA). The DEA represents the amount of after-tax earnings that are not reinvested in US operations β analogous to a dividend from a US subsidiary to its foreign parent.
The Formula
ECEP (Effectively Connected Earnings and Profits) = ECI β US Tax
DEA = ECEP β Net Increase in US Net Equity (US assets β US liabilities)
DEA cannot be negative (zero floor)
BPT = DEA Γ BPT Rate (30% statutory or treaty rate)
Total US Tax = US Corporate Tax + BPT
DEA = ECEP β Net Increase in US Net Equity (US assets β US liabilities)
DEA cannot be negative (zero floor)
BPT = DEA Γ BPT Rate (30% statutory or treaty rate)
Total US Tax = US Corporate Tax + BPT
Example
Foreign branch ECI $2M, US tax $420K (21%), $500K reinvested in US assets, no treaty:
ECEP: $2,000,000 β $420,000 = $1,580,000
DEA: $1,580,000 β $500,000 = $1,080,000
BPT (30%): $1,080,000 Γ 30% = $324,000
Total US Tax: $420,000 + $324,000 = $744,000
ECEP: $2,000,000 β $420,000 = $1,580,000
DEA: $1,580,000 β $500,000 = $1,080,000
BPT (30%): $1,080,000 Γ 30% = $324,000
Total US Tax: $420,000 + $324,000 = $744,000
Sources and References (click to expand)
- IRC Section 884 β Branch Profits Tax
- Treasury Regulation 1.884-1 β Branch Profits Tax
- IRS Form 1120-F Instructions β US Income Tax Return of a Foreign Corporation
- IRS β US Tax Treaties (Country-by-Country Rates)
- IRS Publication 515 β Withholding of Tax on Nonresident Aliens and Foreign Entities
Extended
Branch vs Subsidiary Tax Comparison & Treaty Selector
Compare total US tax under branch vs subsidiary structure, per-country treaty rates, SVG comparison bar chart
Compare total US tax burden under branch (with BPT) vs subsidiary (with dividend withholding) structure. Includes treaty rate selector for both comparisons.
%
What % of subsidiary profits are paid out as dividends %
Treaty rate on dividend withholding (0-30%) Total US Tax: Branch vs Subsidiary
| Structure | Corp Tax | BPT / Withholding | Total US Tax | Effective Rate on ECI |
|---|
Treaty Rate Reference Table
| Country | BPT Treaty Rate | Dividend WHT Rate |
|---|
Frequently Asked Questions
What is the Branch Profits Tax (BPT)?
The Branch Profits Tax (IRC Section 884) imposes a 30% tax on foreign corporations doing business in the US through a branch (not a US subsidiary). The tax is analogous to the withholding tax on dividends that would apply if the US operations were conducted through a US subsidiary. The BPT applies to the Dividend Equivalent Amount (DEA), which approximates the amount that could be "remitted" to the foreign home office.
What is the Dividend Equivalent Amount (DEA)?
The DEA is the tax base for the Branch Profits Tax. It is calculated as: Effectively Connected Earnings and Profits (ECEP) minus net increase in US net equity. ECEP is the after-US-tax effectively connected income. US net equity is the excess of US assets over US liabilities. If the branch reinvests all after-tax income in US assets, the DEA is zero and no BPT is owed.
How do tax treaties reduce the Branch Profits Tax?
Many US income tax treaties reduce or eliminate the BPT rate. Common treaty rates: United Kingdom, Netherlands, Germany β 5%; Canada β 5% (on most amounts); France β 5%; Japan β 5%; Australia β 5%; some treaties (e.g., Malta, Hungary prior to termination) β 0%. Not all treaties address the BPT. The treaty must be in force, and the foreign corporation must qualify as a resident of the treaty country.
What is the difference between a US branch and a US subsidiary for tax purposes?
A US subsidiary (domestic corporation) is a separate legal entity. Dividend payments to the foreign parent are subject to 30% withholding (or reduced treaty rate). A US branch is not a separate entity β there are no dividends, but the BPT simulates this withholding. Net-net, Congress designed the BPT to put branches and subsidiaries at approximate tax parity. The choice of structure involves many non-tax factors as well.
Does the BPT apply to all foreign corporations in the US?
The BPT applies to foreign corporations engaged in a US trade or business through a branch (not a subsidiary). It does NOT apply to: US subsidiaries (separate corporations), foreign corporations with no effectively connected income, or foreign corporations whose home country has a treaty exempting the BPT. The treaty must specifically exempt or reduce the BPT β a general income tax treaty does not automatically eliminate it.