Withholding of partnership distrubtions to non-resident aliens

[cfspartan]

What is the name of your state? Wyoming

I have an investment fund that has a limited partnership structure. The investors come in as limited partners and the general partner makes management decisions. Pretty bread and butter. I have a group of investors from Bahrain looking to make an investment into the fund and I'm worried about withholding. Is there a resource I can investigate for this? Is there a fixed percentage? Is there any feasible way around it such as the investor group setting up a US corporation or LLC? Bahrain does not have any income taxes so this is obviously a concern for them and they're a substantial boon to my business if I can get it structured. My accountant is out of town until the end of next week then I'm leaving on my honeymoon. Any advice you can give would be excellent for a meeting with a new CPA. Thanks guys and gals!!

CFSPARTAN

 

[abezon]

Read Pub 519 at www.irs.gov. In general, most types of non-business investment income will be taxed at a flat rate of 30%. Income that is effectively connected to a US trade or business (or that stems from US real property) is taxed at the same graduated rates as for US citizens.

The only way around this I can think of is if you create a new foreign entity & the US citizens & Bahrainians invest in that. The foreign entity would report the income to the foreign county & pay the appropriate foreign taxes, and each investor would report his/her share of the income on his/her domestic return. This would be very expensive to set up & the law is constantly changing, so you'd need to find a good lawyer & adjust things periodically. Some income would still be subject to US nonresident withholding of 30%, but the Bahrainians could get around some of the taxes that way. Expect to spend Thou$and$ setting it up & maintaining it.

 

[cfspartan]

US Corporation?

Thanks. One of the investors said that he had access to the use of a domestic corporation with a bank account through a nominee or some such. I told him that I didn't need to know the details of how everything was set up just that the company had a valid TIN and bank account at a recognized financial institution. The setup sounds strange.

Can a foreign alien setup a corporation and then get a bank account with all of the Patriot Act requirements? Anyone have experience with this?

CFSPARTAN

 

[LdiJ]

Thanks. One of the investors said that he had access to the use of a domestic corporation with a bank account through a nominee or some such. I told him that I didn't need to know the details of how everything was set up just that the company had a valid TIN and bank account at a recognized financial institution. The setup sounds strange.

Can a foreign alien setup a corporation and then get a bank account with all of the Patriot Act requirements? Anyone have experience with this?

CFSPARTAN

Yes, a foreign alien can set up a domestic corporation and obtain an EIN number. They don't even need a nominee, although its simpler if they also have US shareholders.

 

[cfspartan]

Yes, a foreign alien can set up a domestic corporation and obtain an EIN number. They don't even need a nominee, although its simpler if they also have US shareholders.

Interesting. I have had several people ask me about this at seminars. Is there a resource that I can read to get more information? Would they then be able to get a bank account with that EIN?

 

[LdiJ]

Interesting. I have had several people ask me about this at seminars. Is there a resource that I can read to get more information? Would they then be able to get a bank account with that EIN?

No, I don't know of any particular sources. I am just specifically familiar with people who have specifically done that. However, it has to be a C-corp or an LLC operating as a C-corp. It cannot be an S-corp.