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If a non resident alien invests in a US investment partnership (aka, hedge fund) how does the federal taxation work?
What about FDAP income? How is that taxed?
FDAP income is subject to a flat 30% withholding tax, unless there's a reduction or exemption under a tax treaty between the US and the non resident alien's country of residence. In that case, the non resident alien can claim the treaty benefits by filing a form with the partnership. The partnership may then reduce or exempt the withholding tax.