The taxes that apply to a foreign resident operating a business in the US can vary greatly depending on the specific circumstances of the business and the individual's tax residency status. Some common taxes that may apply include:
Federal Income Tax
Pass-Through Taxation: Partnerships are pass-through entities, meaning the income, deductions, and credits flow through to the partners, who report them on their individual tax returns. Foreign partners are subject to U.S. federal income tax on their share of the partnership's effectively connected income (EC
Withholding Tax: The partnership must withhold tax on the ECI allocable to foreign partners. The withholding rate is generally 37% for foreign individual partners and 21% for foreign corporate partners.
State Income Tax
State Withholding: Some states require partnerships to withhold state income taxes on income allocable to foreign partners.
Filing Requirements
The partnership must file an annual information return (Form 1065) with the IRS, and provide Schedule K-1 to each partner detailing their share of income, deductions, and credits.
It's important to consult with a qualified tax professional to determine the specific taxes that apply to your situation. doola offers CPA consultations to help foreign residents understand and navigate the complex US tax system.
Disclaimer: This information is for general purposes only and should not be considered tax advice.