Senate Backs Off Foreign Investor Tax to Avoid Trade Fallout

As final negotiations on the “One Big Beautiful Bill” enter the home stretch, Senate Republicans are considering a key reversal: dropping the proposed 20% tax on foreign investors’ U.S. income in exchange for trade concessions from key global partners.

This tax, originally introduced in Section 899 of the House version, was designed as a response to digital services taxes (DSTs) imposed by the EU and the OECD global minimum tax framework. It would have significantly affected foreign investment in U.S. real estate, tech, and financial assets but it now may be shelved entirely if negotiations go well.

What Was in Section 899?

Section 899 sought to impose a flat 20% withholding tax on passive U.S.-source income (dividends, royalties, interest, capital gains) earned by individuals and entities in countries with:

• Digital services taxes targeting U.S.-based tech companies

• 15% minimum taxes that negate U.S. deductions or tax credits

• Discriminatory tax treatment of American multinationals

The provision was meant as leverage to discourage unfair tax treatment of U.S. firms abroad but it quickly drew criticism from international investors, trade allies, and treaty law experts.

Senate Shift: A Tactical Reversal

Faced with pressure from U.S. trade partners and multinational corporations, Senate Republicans now propose shelving the tax but only if global partners show signs of pulling back or softening their DST and minimum tax enforcement.

Key developments:

• Section 899 is now conditional it may be dropped or delayed depending on outcomes from the upcoming OECD summit in July.

• Senate leaders have called it a “negotiating chip” and say it’s not essential to the revenue math of the bill.

• Budget reconciliation rules may also limit how the tax can be structured or passed.

  
  

This is a strategic play to cool international tensions while still applying pressure through legislative positioning.

What This Means for Tax Advisors

If passed, Section 899 would have drastically changed how U.S. entities interact with foreign investors raising taxes and compliance burdens for:

• Nonresident individuals investing in U.S. real estate or startups

• Foreign private equity and venture capital firms

• Global tech firms with U.S. subsidiaries and IP licensing structures

  
  

With the tax potentially off the table, tax advisors can breathe easier but the uncertainty around enforcement, treaties, and retaliatory taxes remains.

Planning Ahead with Bizora AI

Bizora AI actively tracks cross-border tax developments and models their impact by investor type, country of origin, and asset class. With instant memos, treaty summaries, and entity planning tools, Bizora helps CPA firms:

• Evaluate exposure for foreign clients holding U.S. assets

• Adjust withholding tax strategies across jurisdictions

• Monitor real-time legislative changes with automated alerts

  
  

Want to know how Section 899 (or its removal) affects your international client base?→ Ask Bizora AI and get instant, memo-ready insights.