Our partners live in three countries — how is the profit allocated?
The allocation is made by the partnership agreement and by the tax rules of the country the partnership was formed in, and those rules pay no attention to where an individual partner happens to live. That is the source of the difficulty. The partnership computes and allocates a share to each partner; each partner's own country then applies its own rules to that share, and may characterise it differently, source it differently, or tax it in a different year. A firm with partners in three countries is answering three sets of questions about one number, and it has to do so centrally, because only the firm holds the allocation. Partners filing in isolation is how inconsistent positions arise.
Why is a partner taxed in a country they do not live in?
Because partnership income usually keeps its source. In most systems a partnership is transparent: the profit is not taxed at the level of the firm, it is allocated to the partners and taxed in their hands, and it carries with it the character and the source it had when the firm earned it. So a share of profit earned through an office or an engagement in another country can be taxable in that country in the partner's own name, whether or not that partner has ever set foot in it. The partner's country of residence then taxes the same share and gives credit for the foreign tax. Getting the source right at firm level is what makes the credit work at partner level.
Do secondments between our offices create a payroll obligation abroad?
Frequently. A secondment moves a person's place of work, and employment tax in most countries follows where the work is performed rather than where the payroll sits. Short assignments are often relieved by treaty, but the relief is conditional — typically on the length of the stay, on the remuneration not being borne by an entity in the host country, and on the employer having no taxable presence there. A firm that recharges the secondee's cost to the host office usually breaks the second condition without noticing, because the recharge is an accounting entry made months after the person arrived. The time to test a secondment is before it starts, not in the following filing season.
Can a partner claim credit for tax the firm paid abroad?
Usually yes, but the mechanics depend on whether the tax was borne by the firm or by the partner. Where the partnership is transparent, foreign tax paid on partnership income is normally treated as paid by the partners in their profit-sharing ratio and claimed in their own returns. Two things commonly break it. The first is timing: the foreign tax and the home taxation of the same profit can fall in different years, and a credit generally has to be claimed in the year the income is taxed at home. The second is evidence, because the partner needs proof of tax paid on their own share and only the firm can produce it. Both are firm-level problems with partner-level consequences.
Has client work performed abroad created a presence we never registered?
It is worth assuming so until you have checked. A presence can arise from an office, but it can equally arise from people: partners or staff working on a client's matter in another country over a sustained period, or someone there who habitually concludes engagements for the firm. Because the work is billed centrally and the partners are taxed personally, nothing in the firm's own accounts flags it. The way to find out is to take the open years of engagements, list the countries in which work was physically performed, and test each against the presence rules of that country. Where a presence did arise, the firm and the partners generally both have filings to make.
Should the firm or the partner file in the foreign country?
Often both, and they are not alternatives. Where the partnership is transparent, the foreign country may require an information filing from the firm and a return from each partner with a share of income sourced there. Where it treats the firm as opaque, or the firm operates through a local entity, that entity files and the partner may have nothing to do. The first thing to establish is how the foreign country characterises your firm, because two countries can classify the same partnership differently and that mismatch produces double taxation no credit relieves. Answer the classification question before any return is drafted.
How much foreign income is tax-free in the United States?
Nothing is exempt in the USA merely for arising abroad — a US person is taxed on worldwide income. What exists is an election: the foreign earned income exclusion removes foreign *earned* income up to an annual cap if you meet one of two qualifying tests, $132,900 for 2026 and $130,000 for 2025, with a separate housing amount alongside it. It does not touch investment income, pensions or gains, and it is claimed on a form rather than assumed. See the foreign earned income exclusion.
Is the sale of foreign property taxable where I live?
For a resident, yes — worldwide gains are taxable, and the gain is computed in your own currency, so the exchange rate at purchase and at sale changes the number even when the local-currency price did not move. The country where the property sits usually taxes it too, often with a withholding or clearance step before closing, and that tax becomes a credit. A principal residence relief may apply to a home abroad on the same terms as one at home. See principal residence and foreign property.
