Foreign governments must now prove their US investments are not commercial

The US Treasury Department has tightened rules on how foreign governments are taxed on their US investments. This means foreign governments must now show their US income comes from passive investments, not active business operations, to avoid paying US taxes.

For decades, foreign governments could invest in the US without paying taxes on their income, as long as it wasn't from commercial activity. These new rules clarify what counts as "commercial activity," making it harder for foreign governments to claim tax exemptions if their investments look too much like a business. This could shift how foreign governments structure their US portfolios, pushing them towards more clearly passive assets.