Operators of manufacturing companies, especially those considering a sale or capital raise, should understand investors’ concerns regarding direct investment. Today, investment funds with investors and investments in multiple jurisdictions constitute a large part of the U.S. manufacturing direct investment landscape. However, tax challenges exist for these fund managers and investors.
The tax treatment of foreign investors depends largely on the type of income generated by a fund. For example, assume that an investment fund is structured as a domestic limited partnership, with both U.S. and foreign investors. Further, assume that the fund acquires a U.S.-based manufacturing company, which is also structured as a domestic limited partnership. Unless structured properly, the foreign investors will have to file U.S. income tax returns and pay U.S. income tax on their share of the income from the manufacturing operations. This structure poses little concern for those American investors, but it is quite troublesome for foreign investors. Continue reading this entry