A foreign individual can be a partner in a U.S. Partnership. However, such a foreign individual partner can be subject to U.S. tax obligations, which differ from those of a foreign corporate partner.
Let’s understand some of their key U.S. tax obligations, which are as follows:
A foreign individual partner should file Form 1040NR, U.S. Nonresident Alien Income Tax Return.
A foreign partner is generally subject to U.S. taxation on their effectively connected income (“ECI”), which is taxed on a net basis at graduated tax rates. Depending on the tax bracket of the foreign partner, they may be subject to rates ranging from 10 to 37 percent (2025), unless otherwise reduced by a tax treaty.
However, the U.S. Partnership may withhold the effectively connected taxable income (ECTI) that is allocable to its foreign partners. The withholding rate is equal to the taxpayer’s top marginal tax rate for the year. For individuals and trusts, the rate is 37% for ordinary income and 20% on long-term capital gains.
Now let’s understand about some of the most common forms of Partnership that can be established in U.S. These are as follows: