Pass-Through Entity Law and Legal Definition

Pass-Through Entity is a nontaxable entity. An example for such entity is partnership. Generally, in a partnership, the income or expense is passed to the underlying owner.

The income of such entities are treated as the income of the investors or owners. Pass-through entities are also known as Flow-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, taxation "flows-through" to another tax return.