| Foreign Partnerships and Limited Liability Companies |
The "big deal" is that partnerships are actually far more complicated that corporations and foreign partnerships are at least half again as complicated as a domestic partnership.
Unlike a corporation, a partnership can be formed by a handshake. A document signed and approved by some government agency is not required. It's not legally necessary for a partnership to have a written partnership agreement -- but it is highly recommended to avoid futurew misunderstandings.
A common example is when a foreign subsidiary of a U.S. corporation enters into a joint venture agreement with a foreign business. If the two companies have agreed to share profits from the venture, they have a partnership, even though no formal agreement may be executed.
Here's another example. Sam and Susan Smith decide to form a foreign limited liability (LLC) company in order to have some assets protection for some of their assets. The foreign LLC will be treated as a foreign corporation unless an election is made to be treated as a "disregarded entity". But if that election is made, the foreign LLC is treated -- for U.S. tax purposes -- as a foreign partnership. The income and deductions flow through to the partners but it's still necessary to prepare the Form 8865 and there aren't a lot of U.S. tax accountants who are familiar with that form.
One way to avoid the problem is to have two LLCs, but that doubles the cost of the LLCs, which can range from $1,500 to $5,000 each.
In many ways, the foreign partnership is a much less difficult and costly arrangement than a controlled foreign corporation, but it is different from a domestic type of partnership in many significant respects. Your local tax accountant is not likely to have a lot of experience with this part of the tax law.
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