Flow-through entity

Flow-through entity

A flow-through entity (FTE) is a legal entity where income "flows through" to investors or owners, that is the income of the entity is treated as the income of the investors or owners. Flow-through entities are also known as pass-through entities or fiscally transparent entities. Depending on the local tax regulations, this structure can avoid dividend tax and double taxation because only owners or investors are taxed on the revenue. Technically, for tax purposes, flow-through entities are considered "non-entities" because they are not taxed; rather, tax "flows-through" to another tax return.

Common types of FTEs are general partnerships, limited partnerships and limited liability partnerships. In the United States, additional types of FTE include S Corporations, income trusts and limited liability companies.

Most countries require an FTE (or its owners) to file an annual return reporting the shares of income allocated to owners, and to provide each owner with a statement of allocated income to enable owners to report their shares of income on their own tax returns. In the United States, the statement of allocated income is known as form K-1 (or Schedule K-1).


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