Hi Atlanta Tax Expert,

With regards to the W-8ECI, the LLP was formed in Arizona to purchase US rental properties. We are Canadians living in Vancouver, BC
Thanks for letting us know if a W-8ECI is needed to provide to the US property manager in order to avoid the 30% withholding on the rentals.

Some form of W-8 will be required, but I doubt you can completely avoid withholding, since you are a foreign national getting income from a U.S. source that IS subject to U.S. income taxes.

The U.S.-Canada Tax Treaty probably calls for a reduced withholding (10-20%), and you will have to cite that treaty article when you complete the W-8ECI.

I suspect that the LLP will have to file Form 1065 (partnership return) and then YOU, as Canadian partners, would have to file Form 1040NR to claim any refund if the withheld amount WAS 30%, but the treaty calls for a lower tax rate. If the tax rate matches the withheld rate, then NO tax return is required.

I am in a similar situation.
I know that if you are the owner, not the LLP, then:

From IRS

.. Foreign individuals and foreign corporations may elect to have their passive rental income taxed as if it were effectively connected with the U.S. trade or business. Once such an election is made by attaching a declaration to a timely filed income tax return, there is no obligation to withhold even in a net-lease situation.. .
Foreign Persons Receiving Rental Income From U.S. Real Property (http://www.irs.gov/businesses/small/international/article/0,,id=129631,00.html)

You are going to need to do the following:

File the form 1040NR
elect to be effectively connected with US trade or business
send to the withholding agent (your LLP) a form W-8ECI
Send the W-8 form to get ITIN together with the tax return


Becareful about the time frame. You only have 16 months from the original due date of the return to elect to treat the rental income as effectivel connected with a US trade or business.
Hope that helps.

NB: I am trying to figure this out myself too. I am not sure this is 100% correct way to do it. You probably need to file 1065 for the partnership

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