Are different vehicles for carrying on business, such as companies, partnerships, trusts, etc, recognised as taxable entities? What entities are transparent for tax purposes and why are they used?

Tax (3rd edition)

Switzerland Small Flag Switzerland

Only companies (the most common type being the company limited by shares) are treated as taxable entities separate from their shareholders.

Partnerships are treated as transparent for tax purposes. Profits and capital of Swiss partnerships are directly attributed to the partners, who are subject to income and wealth tax on said profits and capital.

It is not possible to establish a trust under Swiss law. Consequently, Swiss tax law recognises trusts as independent entities only in limited circumstances. As a general rule, if a trust is settled by a Swiss resident, the assets (and income derived from those assets) are still be attributed to said Swiss resident for Swiss tax purposes.

United States Small Flag United States

Yes. Under US tax law, certain entities are eligible to elect their classification for US tax purposes. Foreign as well as domestic entities may make the election.

Whether an entity is eligible to elect its classification for US tax purposes depends largely on whether the entity is treated as a “per se corporation” for US tax purposes (in which case it will be taxed as a separate taxable entity) and the number of its beneficial owners.

An entity with only one beneficial owner may elect to be treated as an entity that is disregarded from its owner for US tax purposes or as a separate taxable entity. An entity with more than one beneficial owner may elect to be treated as a partnership for US tax purposes or as a separate taxable entity.

For US tax purposes, certain legal entities, such as limited partnerships, LLCs, and small business corporation, are generally taxed as “pass-through” entities. A “pass-through” entity is not itself subject to US tax. Rather, income flows through, and is directly taxed, to the entity’s owners. Such entities may be used to mitigate the effects of double taxation of income.

Canada Small Flag Canada

Corporations and trusts are treated as separate taxable entities under Canadian income tax law. However, a trust is treated as a flow-through entity and not subject to income tax if it distributes all of its income and gains for the year to its beneficiaries. Partnerships are not treated as taxable entities.

Limited partnerships are transparent for tax purposes and are primarily used as private collective investment vehicles. Limited partnerships can also be used to carry on an active business; however this is less common.

Mutual fund trusts are not transparent for tax purposes; however, they are typically taxed as a flow-through vehicle. They are typically used for public collective investment vehicles and REITs. They are not appropriate for carrying on an active business in Canada.

Canadian unlimited liability companies (ULCs) are not transparent for Canadian tax purposes. However, they are transparent for United States tax purposes. As a result, they are often used in structuring investments into Canada by US entities in order to achieve US tax benefits.

Austria Small Flag Austria

For Austrian tax purposes it has to be distinguished between intransparent and transparent entities.

Stock companies (Aktiengesellschaft (AG)), limited liability companies (Gesellschaft mit beschränkter Haftung (GmbH)) and private foundations (Privatstiftung) are intransparent and subject to Austrian corporate tax law. Private foundations may not run an active business.

Partnerships - most importantly the general partnership (Offene Gesellschaft (OG)) and the limited partnership (Kommanditgesellschaft (KG)) are legal entities, but treated transparent for tax purposes; income is taxed proportionally in the hands of the partners.

France Small Flag France

All entities carrying on a profit-making activity are taxable entities. Hence, partnerships are taxable entities, but income tax is paid by partners.

As a general rule, France tax law does not acknowledge transparent entities except for the "société immobilière d'attribution" ruled by Article 1655 ter of the French tax code (i.e. companies irrespective of their legal form whose sole purpose is the acquisition or construction of buildings or groups of buildings in order to of their division by fractions intended to be allotted to the partners, in property or enjoyment, either the management of these buildings or groups of buildings thus divided, or the hiring, on behalf of one or more members of the company, of all or part of the buildings belonging to them). However in practise there is a limited number of those companies.

The French 'société civile immobilière' (SCI) is the most common vehicle used for French real estate investments: flexible, quick & cheap, allows a tax consolidation of the profits and losses derived from the different stakes without any tax consolidation formalism, but with unlimited liability of the partners.

The French 'Société Civile de Placement Immobilier' (SCPI) is a mutual fund investment structure used for collective real estate investment. The purpose of a SCPI is the acquisition and management of a professional real estate asset. The management company deals with collecting the money from private individuals, finding property in which to invest, managing this building stock and redistributing incomes to its unitholders.

The French 'société en nom collectif' (SNC) is a commercial vehicle which can be found in real estate mixed with services such as hotels, care homes, student houses etc…with similar characteristics as the SCI.

Cyprus Small Flag Cyprus

While Cyprus recognises a wide range of business structures, including all the above, only natural and legal persons (individuals, companies and their branches and permanent establishments, and foundations) are treated as taxable entities. Partnerships and trusts are treated as transparent for tax purposes and the income is assessed on the partners and the beneficiaries respectively.

Brazil Small Flag Brazil

The only transparent entity recognized by Brazilian legislation is the Consortium.

The Consortium is an agreement settled by and between two or more parties that have a common purpose. The Consortium shall neither be considered a legal entity, nor own properties or assume obligations before third parties.

Each member of the Consortium shall own the assets and/or rights and, also, assume obligations before third parties. As a general rule, there is no jointly liability among the members, even for tax purposes, in such a way that each member is responsible for its obligations individually.

The Consortium Agreement will determine (i) the contribution of each member for the common expenses; (ii) the sharing of revenues; and (ii) the criteria for division of results.

In this context, each member should recognize its income and expenses derived from the Consortium Agreement and include it in its respective tax return. Consortium members are responsible for the payment of the taxes levied on the income/revenues arising from the Consortium, proportionally to their participation in the Consortium Agreement.

Germany Small Flag Germany

a) Taxable entities

German tax law differs between tax transparent entities, such as partnerships, and non-transparent entities, such as corporations. For income tax purposes the taxable income of a partnership is generally allocated to its partners in proportion to their interests held and taxed at the level of the partners. German tax law provides for an exception from the tax transparency of partnerships if profits are not distributed to the partners upon application.
Corporations are treated as separate and distinct from their shareholders, so that the taxable income is taxed at the level of the corporation itself.

As regards trade tax, partnerships and corporations are generally liable to trade tax.

b) Business reasons for the usage of tax transparent entities

Tax transparent entities are primarily favourable if the partner wants to use losses from the business carried out with the partnership to reduce his personal tax burden. A part of the trade tax can be credited against the income tax of the partner provided he is an individual.

Ireland Small Flag Ireland

Businesses are typically carried on through a limited liability company (which is a taxable entity) or by individuals (who are taxable in their own name). Business may also be carried on through partnerships (of companies or individuals or a combination) but partnerships are transparent for tax purposes and each partner is deemed to conduct its own several trade.

Trusts can attract income tax, capital gains tax or inheritance tax. The tax payable and the person responsible for ensuring the tax is paid largely depends upon the type of trust.

Israel Small Flag Israel

Yes. While the main form of conducting business is a limited company, there are several other entities that may be utilised, including partnerships and other forms of transparent entities such as family companies, trusts, and house companies (special companies suitable for investments in real estate).

By using an entity that is transparent for tax purposes, taxpayers can generally benefit from one level of taxation (that is, avoid the entity-level tax, which is applicable when utilising a limited company). Partnerships, for example, are a common form of incorporation in Israel utilised by investment funds, including venture capital and hedge funds. Trusts are used by high-net-worth families to effectively manage their wealth and its tax-efficient allocation among its members.

Malaysia Small Flag Malaysia

Under the ITA, income tax is charged upon the income of any person accruing in or derived from Malaysia or received in Malaysia from outside Malaysia.

“Person” is defined under the Act to include a company, a body of persons, a limited liability partnership and a corporation sole. It is noted that though partnerships, trusts and foundations are not expressed as “person” under the Act, the definition is not exhaustive.

In respect of trusts, the ITA provides that any source forming part of the property of the trust, any source of a trustee of the trust, being a source of his or hers by virtue of specific provisions of the ITA and any income from any such source, save that gains arising from the realisation of investments from unit trusts, are all treated as income of the trust body of the trust. The income of the trust body of a trust is assessed and taxed separately from the income of a beneficiary from any source. Hence, income tax can only be charged once, either in the hands of the trustee or the beneficiary when it is paid out to the latter.

The Act also accords deductions at specific rates for gifts of money made to an organisation or institution approved by the relevant authorities. The Act further accords tax exemption to approved institutions, organisations or funds or religious institutions, organisations or funds that are not operated or conducted primarily for profit and that are established in Malaysia exclusively for the purposes of religious worship or the advancement of religion.

For partnerships, its partners, not the partnership itself, are liable to pay personal income tax for profits earned under the partnership. Conversely, the establishment of a limited liability partnership (LLP) is governed by the Limited Liability Partnerships Act 2012. An LLP is treated as a separate taxable person for the purposes of the ITA.

Mexico Small Flag Mexico

Legal entities such as companies or partnerships incorporated under the laws of Mexico are taxable entities.

Mexican law does not recognize the transparency of any corporate or legal forms.

However, passive income trusts or participation associations (asociación en participación), which are not considered to be a corporate form but rather a contract from a legal perspective, do qualify as pass-through vehicles since they are not considered taxable entities, to the extent they comply with certain requirements. Trusts of the kind are mainly used, for instance, by private equity funds considering that they not only recognize a transparent tax treatment, but also provide with considerable flexibility to regulate corporate governance issues that may not be achieved through traditional legal entities.

Norway Small Flag Norway

Limited liability companies, both private (aksjeselskap – AS) and public (allmennaksjeselskap – ASA), are widely used for business activity in Norway, and recognised as separate taxable entities.

General partnerships (ansvarlig selskap – ASA) where the partners are jointly and severally liable for the obligations of the partnership, and limited partnerships (KS/IS) where one or more general partners has unlimited personal liability and one or more limited partners has liability limited to a pre agreed amount, is also common. Both forms of partnerships are considered as separate legal entities, but for tax purposes partnerships are considered as transparent. Generated income and loss is calculated on the partnership level but taxed at the partners' level.

Such tax transparent entities are primarily favorable if the partners want to use losses from the business carried out within the partnership to reduce personal tax burden. A company that started out as a partnership may be converted into a limited liability company without taxes being levied, given that a set method is followed for the conversion.

Trusts may not be formed under Norwegian law. Trusts formed under the law of other jurisdictions is generally recognised for tax purposes and regarded as separate taxable entities.

Panama Small Flag Panama

Vehicles for performing operations in Panama are the corporation, Limited Liability Company, limited liability partnership, general partnership, joint venture and branch of a foreign corporation.

Tax treatment for all the vehicles listed above is the same under Panama Tax Regulations. Nonetheless corporations are the most commonly used vehicle do to the fact that shareholders maintain as private information.

Depending on the jurisdiction where the holding is located, it might be possible that the Panamanian company incorporated is a limited liability company as is the transparent type of vehicle which shows the owners or shareholder information.

Philippines Small Flag Philippines

Yes, these entities are recognized as taxable entities. The exception is general professional partnerships, which are not subject to income tax. Individuals carrying on business in a general professional partnership are taxable on their distributive shares of the income of the partnership, whether distributed or not.

Portugal Small Flag Portugal

Portuguese law foresees different vehicles for carrying on business, being companies the most commonly used. Such vehicles are, as a rule, recognized as taxable entities.

Transparent entities foreseen under the terms of the CIT Code correspond to the following:

i) civil companies with commercial capacity;

ii) firms of professionals;

iii) asset-management civil companies, the equity capital of which is controlled, directly or indirectly, for more than 183 days by a family group or a limited number of members, under certain conditions;

iv) Complementary Business Groupings (“ACE”), constituted and operating in accordance with the applicable law; and

v) European Economic Interest Groupings (“AEIE”) treated as residents.

Under this regime, income obtained by transparent entities is determined under the CIT Code rules and directly imputed to the shareholders or participants, regardless of any income distribution.

Although this regime is deemed to promote tax neutrality, applying the same taxation regardless of the way entities chose to develop their activity (either individually or collectively), this is not the case when the shareholder or participant of the transparent entity is an individual, as the progressive PIT rates up to 48% are much higher than the normal CIT rate of 21%. That is why in Portugal transparent entities are created for carrying on business whenever there is no other option under law, or by reason for any practical reason usually not related to the transparent entities tax regime.

Italy Small Flag Italy

Companies can be incorporated in the form of società per azioni, società in accomandita per azioni, società a responsabilità limitata are considered taxable entities and subject to corporate income tax. The incorporation as società per azioni is required in order to carry out certain business activities (such as banking) while società a responsabilità limitata are usually used to carry out small-medium businesses.

Partnerships can be set up in the form of società in nome collettivo, società in accomandita semplice or società semplice and they are all transparent for income tax purposes, so that partners are taxed on their share of the partnership’s profits regardless of whether the partners are resident or non-resident of Italy. Societa’ in nome collettivo and societa’ in accomandita semplice are generally used to run small and medium size businesses; income accrued with these partnership and imputed to the partners is always classified as business income. Societa’ semplici are generally used for succession planning purposes and as holding companies of certain particular assets given the flexibility as to the rules applicable to their government and the fact that the income imputed to the partners does not lose its original qualification.

Trusts can be qualified as (i) taxable entities (ii) transparent entities: when their beneficiaries are clearly identified and have a right to the income of the trust (such as a right to claim the distribution of an income); in such a case a trust is considered transparent and the income is imputed to the beneficiaries to the extent of their respective rights to the said trust income; (iii) disregarded entities: this is typically the case when the settlor or beneficiaries have, de facto, significant powers in relation to the management of the trust assets. The income and gains of a disregarded trust are imputed to the settlor or beneficiaries, depending on the circumstances, and taxed in their hands as if they received them directly.

Turkey Small Flag Turkey

Income tax is charged on certain types of income whether the taxpayer is a natural person or an entity. Corporate tax is charged on the same items of income but only for certain types of entities, some of which are not considered legal persons under civil law: i) corporations, ii) cooperatives, iii) state-owned enterprises, iv) enterprises owned by associations or foundations, v) business partnerships. However, some unincorporated partnerships, e.g. attorney partnerships, are transparent for tax purposes, which means partners, are taxed individually as if they are ordinary partnerships, collective and ordinary limited partnerships.

Japan Small Flag Japan

Yes. Japanese corporate law makes available several options of corporate forms; among these, the most commonly used one is a kabushiki kaisha (stock corporation; commonly referred to as a “KK”). A godo kaisha, which is modeled after a U.S. limited liability company (LLC), is also common for small businesses or as subsidiaries of foreign companies (commonly referred to as a “GK”). As Japanese corporations, a KK or a GK is taxed as a corporation, and cannot be taxed as a transparent or passthrough entity.

Only non-corporate business forms are eligible for transparent or passthrough taxation for Japanese tax purposes. These business forms take the form of a partnership (kumiai), which is an aggregate of partners based upon a contractual relationship, but not being an entity separate and distinct from the partners. A partnership (kumiai) is taxed as transparent or passthrough; that is, they will not be treated as an independent taxpayer, but rather their partners are taxed as taxpayers with respect to the income derived from the business of the partnership. In general, the profits and losses derived from the business of the partnership are allocated to each of the partners based upon the percentage agreed upon in the relevant partnership agreement (most commonly, the ratio of capital contributions). There are rules for limitation of allocation of losses to certain passive partners (e.g., limited partners) to prevent tax avoidance using these partnership structures.

Trusts are also recognized. Generally, plain-vanilla common-law type of trusts are disregarded and treated as a conduit, i.e., it is treated for tax purposes as if the beneficiary of the trust owned the entrusted assets directly and derived the income and gains from the entrusted property directly. However, some special types of trusts are treated as a corporation by itself (i.e., as a standalone taxpayer apart from beneficiaries), and some investment trusts used as a collective investment vehicle are treated as somewhat an opaque entity, i.e., the trust itself is not a taxable entity and the beneficiaries or the investors are taxed only when they received actual distributions.

The Netherlands Small Flag The Netherlands

The major business entities used in the Netherlands are the Dutch BV (a Dutch incorporated private company with limited liability), the Dutch NV (a Dutch incorporated public company with limited liability) and the Dutch cooperative (Coöperatie).

Dutch BVs, Dutch NVs and Dutch cooperatives established under Dutch law are in principle treated as tax residents of the Netherlands for Dutch corporate income tax (CIT) and Dutch dividend withholding tax purposes. Furthermore, companies are treated as residents of the Netherlands for Dutch tax purposes if their place of effective management is in the Netherlands.

In general, companies tax resident in the Netherlands are subject to Dutch CIT on their worldwide income. As opposed to the US, the Netherlands does not have entity classification rules pursuant to which an election could be made to treat Dutch BVs, Dutch NVs and/or Dutch cooperatives differently than as corporations for Dutch tax purposes.

The Dutch BV and the Dutch NV are entities with legal personality, with a capital divided into shares. Their shareholders are not personally liable for the obligations of the BV/NV, but their liability is limited to the issued share capital. As per 1 October 2012, Dutch corporate law has been amended for a simplification and flexibilization of BV-law. Further the main difference between the Dutch BV and NV is that the shares of the Dutch NV are freely transferable and can be publicly listed.

The Dutch cooperative is an entity separate from its members, i.e. it has legal personality. The cooperative can take the form of (i) an unlimited cooperative, (ii) a limited cooperative, or (iii) a cooperative with excluded liability. A cooperative can be incorporated by two or more incorporators, who usually (but not necessarily) become the first two members. Its statutory purpose must be to satisfy the needs of its members. Historically, these entities were used in the agricultural sector; however, at present they are commonly used as holding companies to manage Dutch dividend withholding aspects.


In the Netherlands a limited partnership, a CV, can either be transparent for Dutch tax purposes (i.e., a so-called closed CV) or be subject to Dutch CIT and dividend withholding tax to the extent of the interest of the limited partners (i.e., a so-called open CV).

In practice, CVs are generally established in such a manner that they qualify as transparent entities for Dutch tax purposes. In order to accomplish this Dutch tax transparency, it is essential that the admission or replacement of limited partners in the CV is subject to written consent of all partners of the CV.


Dutch law does not provide for the legal form of a trust. Trusts established according to the laws of a country other than the Netherlands, can be considered transparent or non-transparent for Dutch tax purposes, depending on their specific characteristics.

Romania Small Flag Romania

Individuals and incorporated businesses are recognized as taxpayers and have to pay taxes in Romania. Unincorporated structures as joint-ventures, partnerships or other similar structures are transparent for tax purposes with partners / participants being subject to business tax or individual income tax, as the case may be.

Gibraltar Small Flag Gibraltar

Yes, companies and trusts that have assessable income in Gibraltar are subject to tax at a rate of 10%. Partnerships are tax transparent and taxed in the hands of the Partners.

United Kingdom Small Flag United Kingdom

In the UK there may be a difference between the recognition of an entity for tax purposes and the incidence of tax liability. A company is a legal entity and pays tax at the corporate level. A general partnership is not a legal entity distinct from its partners (except in Scotland) but profits are computed at partnership level and consequent tax is levied at partner level on the individual partner’s share of the profit. A limited liability partnership is a legal entity for company law purposes but, provided it is trading, is treated like a general partnership for tax purposes, ie as transparent.

Trusts can attract income tax, capital gains tax or inheritance tax. The tax payable and the person responsible for ensuring the tax is paid largely depends upon the type of trust.

Updated: October 30, 2018