Can a foreign corporation own US real estate?

13/10/2022

Can a foreign corporation own US real estate?

foreign corporations The gain from the sale of an interest in a foreign corporation is not subject to tax under FIRPTA. Thus, a foreign person may own US real property indirectly through a foreign corporation and ultimately sell the shares of that foreign corporation and avoid US tax on the gain from the sale.

Should a foreign corporation invest in US real estate?

The main advantage to owning real estate through a foreign corporation is that it will allow you to bypass US estate tax. The US estate tax is based on individual non-resident ownership of US assets, but in this case the assets are directly owned by a foreign corporation.

What is the point of a blocker corporation?

Blocker corporations preserve the disparity in treatment created by Congress through the Internal Revenue Code – the fact that while most investors will be taxed on their capital gains, foreign investors and tax-exempt investors avoid taxation.

What is a blocker investor?

A blocker corporation is a type of C Corporation in the United States that has been used by tax exempt individuals to protect their investments from taxation when they participate in private equity or with hedge funds. In addition to tax exempt individuals, foreign investors have also used blocker corporations.

Can foreign investors buy US real estate?

Yes, Non-US citizens can buy property in the US since there is no citizenship requirement for real estate sales. In fact, foreigners can even qualify for a mortgage if they meet certain requirements. However, foreign property owners do face a more challenging tax situation than US citizens.

Do foreign real estate investors pay US taxes?

The Foreign Investment in Real Property Tax Act (“FIRPTA”) requires a withholding tax of 15% on the amount realized on the disposition of an interest in U.S. real property by a foreign person.

Who are US tax-exempt investors?

The real winners are U.S. tax-exempt entities, such as charities, pension funds, university endowments, and IRAs, as well as foreign investors. And investment fund managers can benefit too.

Does Ubti apply to foreign income?

UBTI includes income from unrelated trades or businesses (including certain fee income). Interest, dividends, capital gains and foreign currency gain or loss generally are excluded from the definition of UBTI, unless they are derived from debt-financed property.

What is a REIT blocker?

REITs as a Blocker of Unrelated Business Taxable Income (“UBTI”) and Effectively Connected Income (“ECI”) with a U.S. Trade or Business. Tax-exempt investors are subject to tax on UBTI. Real estate rental income is generally excluded from UBTI, however there is a major exception when real estate is financed with debt.

Do foreign investors need to pay taxes in US?

U.S. Tax for Foreign Investors As a general rule, foreign investors (i.e. non-U.S. citizens and residents) with no U.S. business are typically not obligated to file a U.S. tax return, including on income generated from U.S. capital gains on U.S. securities trades.

What is a blocker subsidiary?

Blocker Subsidiary . An entity treated as a corporation for U.S. federal income tax purposes, 100% of the equity interests in which are owned directly or indirectly by the Issuer.

What is a US blocker?

Blockers are U.S. or foreign entities that are classified as corporations for U.S. income tax purposes. If they are formed in the United States, they are usually established as state law corporations. On the other hand, offshore blockers may check the box under Regs.

Who can invest in a private REIT?

Private REITs generally can be sold only to institutional investors, such as large pension funds, and/or to “Accredited Investors” generally defined as individuals with a net worth of at least $1 million (excluding primary residence) or with income exceeding $200,000 over two prior two years ($300,000 with a spouse).

What is blocker structure?

Blocker entities are a common part of private equity fund structures. In many cases, blockers are used to insulate foreign and tax-exempt investors from direct tax liability in the fund’s home jurisdiction.