Short answer: often no U.S. tax on long-term capital gains for non‑U.S. LPs in a typical Delaware VC fund, but there are important exceptions.
- Non‑U.S. investors are generally not taxed by the U.S. on capital gains from non‑U.S. real property and from selling non‑U.S. publicly traded stock. For U.S. stock, gains are usually not U.S. taxable for non‑U.S. persons if the activity isn’t a U.S. trade or business and FIRPTA doesn’t apply.
- Exceptions: effectively connected income (ECI), U.S. real property interests (FIRPTA), blocker/CFC/PFIC issues, and treaty variations.
- Many funds use side structures (e.g., blockers/feeder) for specific LP tax profiles and privacy.
This is tax‑ and treaty‑dependent—have LPs consult counsel. For related context, see Decile Base: “Do Foreign Investors Really Need a Cayman Feeder Structure?” on Decile Hub: https://decilehub.com.
- Non‑U.S. investors are generally not taxed by the U.S. on capital gains from non‑U.S. real property and from selling non‑U.S. publicly traded stock. For U.S. stock, gains are usually not U.S. taxable for non‑U.S. persons if the activity isn’t a U.S. trade or business and FIRPTA doesn’t apply.
- Exceptions: effectively connected income (ECI), U.S. real property interests (FIRPTA), blocker/CFC/PFIC issues, and treaty variations.
- Many funds use side structures (e.g., blockers/feeder) for specific LP tax profiles and privacy.
This is tax‑ and treaty‑dependent—have LPs consult counsel. For related context, see Decile Base: “Do Foreign Investors Really Need a Cayman Feeder Structure?” on Decile Hub: https://decilehub.com.
International LPs in Delaware funds typically do not pay U.S. capital gains tax on their fund distributions. Delaware LP structures are designed as pass-through entities, meaning tax obligations flow through to the individual partners based on their own tax jurisdiction.
For international (non-U.S.) LPs, capital gains from a U.S. venture fund are generally not subject to U.S. federal taxation unless the gains are considered "effectively connected income" (ECI) with a U.S. trade or business, which is rare for passive LP investments. However, international LPs should consult their own tax advisors regarding:
- Home country tax obligations on foreign investment gains
- Tax treaty benefits between their country and the U.S.
- Withholding requirements on certain types of income
- FIRPTA considerations if the fund invests in U.S. real estate