The world is becoming a smaller place for those participating in the equine industry. We see many of our US-based clients either expanding operations abroad or our non-US based clients bringing horses into the US for the first time. 

There are many US tax implications for non-US participants in the US equine industry, which may be confusing.  I’ve attempted to summarize some of the most frequent issues that we see in our practice below.  If our equine team can assist with any of these matters, please let us know!

1. Do you conduct your equine activity as a hobby, or as a business with expectation of profit?  This is an issue for US participants in the equine industry as well.  If you conduct your equine activity as a hobby, you will not be able to deduct some or all of the expenses associated with that activity against the income from that activity.  There is the potential that you would owe federal tax on your gross US income from the activity.  If conducted properly as a business, racing or breeding activities (among others) would qualify (i.e., there are not activities that the US considers inherently hobbies).
2. If you have US income from your equine activity, you should file a return generally within 20 months of your year-end or face tax on your gross (vs. net) income.  This is a significant generalization, but the message is a valid generalization.  If you have gross income from the US, you should consider filing timely in the US.
3. If your only involvement in the US equine industry is via an independent agent who doesn’t regularly conclude contracts on your behalf (including racing agreements) and if you are a resident of a country that has a regular (e.g., OECD) treaty with the US, you may be able to claim a treaty exemption based on your having no “permanent establishment” in the US.
4. Horses owned by a foreign company (vs. an individual or partnership) will be subject to rules that may impute a dividend on leaving the US.
5. Income from horses may be eligible for federal treaty exemptions, but they will always be subject to state and local taxes – so planning in this regard is necessary.
6. Federal withholding (at 30%) can be minimized or eliminated depending on you current situation. 
7. State sales and use taxes can be imposed on the sale or use of a horse – every US state has different exceptions for the sale and use of horses in their state. 
8. Horses owned directly by a non-US individual or indirectly by US corporation owned directly by a non-US individual (vs. by a foreign corporation) can result in US estate tax if the owner dies while the horse is in the US. 

Leigh McKee
lmckee@ddfky.com