U.S. Partnerships With Foreign Partners: Navigating Withholding, Informational Reporting and Payment Requirements

Description

Tax advisers serving partnerships with foreign (non-U.S.) partners have unique tax compliance and planning challenges. Determining the character of the partnership’s income regarding the foreign partner is a critical first step for tax professionals advising partnerships with non-U.S. partners.

The Service requires U.S. partnerships to collect and report specific information regarding their non-U.S. partners. Importantly, the recent overlay of FATCA withholding requirements often means partnerships and other business entities must make two different determinations of whether withholding is required.

U.S. tax law provides several different withholding requirements for foreign partners, depending on the type of income the partnership receives and the manner in which the partnership conducts its activities. The TCJA made several significant alterations to the withholding requirements for foreign partners of U.S. partnerships.

For partnerships engaged in a trade or business, their income typically will be deemed “effectively-connected income,” which has significantly different tax results concerning both withholding consequences and tax rates than income that is not generated from being engaged in a trade or business.

Partnership tax advisers also must understand the effects of treaties on the treatment of a partnership and its partners, as they may reduce or eliminate withholding requirements and income taxes on certain types of income.

Listen as our experienced panel provides a comprehensive and practical guide to the tax planning and reporting issues specific to partnerships with foreign partners.