Crossing Borders: Primer On International Taxation For Individuals - June, 2013
Upcoming SlideShare
Loading in...5
×
 

Crossing Borders: Primer On International Taxation For Individuals - June, 2013

on

  • 766 views

Basic income and estate and gift tax rules for resident and non-resident aliens. Withholding. Returns to be filed. Pre-immigration planning. Residency for tax purposes. Expatriation - IRC Section ...

Basic income and estate and gift tax rules for resident and non-resident aliens. Withholding. Returns to be filed. Pre-immigration planning. Residency for tax purposes. Expatriation - IRC Section 877A. How to hold real estate (inbound planning). Effectively connected income so as to be taxed at graduated rates. What does it mean to be engaged in a trade or business. Impact of treaties. Making the election to be taxed on a net income basis. Owning real estate through a foreign corporation, and handling the branch level taxes. IRS Forms 1120-F and 1040NR. FDAP: fixed,determinable and periodical income at 30%. Partnership might be required to withhold on foreign partner's share of gain on sale of real property under Section 1445 (USRPIs) and Section 1446 (partnerships). U.S. dividends paid to foreign subject to 30% under Sections 1441 and 1442. Treaties typically reduce the rate to 5% - 15%. Use W*-BEN. FIRPTA: the Foreign Investment in Real Property Tax Act treats gain from the sale of USRPI (United States real property interest) as if trade or business and gain as ECI (effectively connected income. Does not affect the character of the gain.

For more information, please visit us at www.givnerkaye.com

Statistics

Views

Total Views
766
Views on SlideShare
707
Embed Views
59

Actions

Likes
1
Downloads
6
Comments
0

2 Embeds 59

http://www.scoop.it 56
https://twitter.com 3

Accessibility

Upload Details

Uploaded via as Adobe PDF

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

Crossing Borders: Primer On International Taxation For Individuals - June, 2013 Crossing Borders: Primer On International Taxation For Individuals - June, 2013 Document Transcript

  • LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION SUITE 445 12100 WILSHIRE BOULEVARD LOS ANGELES, CALIFORNIA 90025 www.GivnerKaye.com www.MajorTaxProblems.com BRUCE GIVNER (bruce@GivnerKaye.com) OWEN D. KAYE (owen@GivnerKaye.com) KATHLEEN GIVNER (kathy@GivnerKaye.com) NEDA BARKHORDAR (neda@GivnerKaye.com) PHONE (310) 207-8008 (818) 785-7579 FAX (310) 207-8708 (818) 785-3027 June 6, 2013 CROSSING BORDERS: A PRIMER ON INTERNATIONAL TAXATION FOR INDIVIDUALS1 1. History of Foreign Tax Practice. 1.1. 1960s. Big firms, big clients. 1.2. 1980s. Japan, Europe, Asset Protection, Tax Evasion. 1.3. 2000s. Internet, China, small firms, small clients. 1.4. UBS, OVDI, FBARs, FATCA. 2. General Rules. 2.1. Overview. 2.1.1. RA roughly equal to citizen. 2.1.2. NRA generally taxed only on certain passive, non-business investment type income or income attributable to US TorB. 2.2. Income Tax. 2.2.1. FDAP. 30%. Not ECI with U.S. TorB:2 (i) investment-type and compensation income, generally excluding capital gains,3 but including, e.g., certain dividends,4 interest,5 1 The title and some of this material is adapted from “Crossing Borders: Light and Truth, A Primer on International Taxation and Compliance For Individuals,” by Paul Sczudlo (then of Loeb & Loeb, now at paul@sczudlolegal.com, 2008 USC Tax Institute. 2 §871(a)( and 881, 3 NRA in U.S. for 183 days or more (§7701(b) defines the person as a resident), subject to 30% tax on net U.S. source capital gain. Also if gain is ECI. Also if from sale of certain timber, coal or domestic iron ore assets. 4 If the domestic corporation derives at least 80% of its income from an active foreign business, then the percentage of the dividend that correlates to the percentage of the corporation’s foreign income to overall income is not subject to the 30% tax. §871(i). 5 Tax exempt interest, §103, is exempt for NRAs also. Interest on bank deposits and portfolio loans is exempt. §871(h). Portfolio loans are designed to be sold only to NRAs, payable outside the US, bear a prescribed legend, does not apply to a 10% owner of the entity paying the interest.
  • LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION Crossing Borders: A Primer On International Taxation For Individuals January 19, 2013 Page 2 of 16 royalties, rents, salaries, wages, compensation,6 insurance premiums, annuities, gambling winnings, alimony. (ii) OID. (iii) gains from the sale or exchange of patents, copyrights and other IP to the extent realized from payments contingent on production, use or disposition of the property. (iv) 85% of U.S. Social Security benefits.7 2.2.2. ECI. (i) NRA who is ETB pays tax at regular rates.8 (ii) U.S. TorB: no central definition. Providing personal services in the U.S.; selling products in the U.S. directly or through an agent; soliciting orders from the U.S. and then exporting merchandise outside the U.S.; having a retail store or corporate office. (iii) Partner will be ETB if the partnership is and a beneficiary will be ETB if the trust is. (iv) If deferred payment item, test for TorB in year transaction that gave rise to payment was completed.9 NRA performs services in 2012 and is paid in 2013. Was 2013 payment ECI to 2012 services? 10 year lookback for sale of business property.10 Truck used in business in 2005, business closes in 2006, and truck sold in 2013. Deemed ECI to earlier business and subject to regular tax rates. (v) Gains from sale of USRPI generally treated as ECI.11 2.2.3. Foreign corporations. Similar taxing of ECI and FDAP.12 6 In most cases compensation will be ECI, requiring a regular income tax return, subject to regular income tax rates. 7 §871(a)(3). 8 §871(b) and 882. 9 §864(c)(6). 10 §864(c)(7). 11 §897.
  • LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION Crossing Borders: A Primer On International Taxation For Individuals January 19, 2013 Page 3 of 16 2.2.4. Withholding. (i) FDAP. (ii) Personal services income.13 (iii) Allocable share of partnership income due to U.S. TorB. (iv) Disposition of USRPI.14 2.2.5. Treaties. (i) Taxation of FDAB may be reduced or eliminated.15 (ii) Taxation of ECI is avoided until a permanent establishment or fixed base is established.16 (iii) Exhibits list both income tax and transfer tax treaty partners. 2.3. FDAP.17 2.3.1. Tax Collected By Withholding. (i) 30% is collected by withholding agent.18 (ii) Reporting is on Forms 1042 and 1042S.19 (iii) Claim treaty benefits by giving the withholding agent Form W- 8BEN.20 To claim treaty benefits other than on certain U.S. source dividends, NRA must have a TIN.21 Use Form 8223 to claim exemption from withholding on personal services.22 12 §§881, 882 and 884. 13 Limited rule exempts certain compensation of less than $3,000. §861(a)(3). 14 §§1441-1446. 15 See Articles 10 and 11 of the U.S. – U.K. Income Tax Treaty which reduces the tax of U.S. source dividends received by U.K. individuals from 30% to 15% and generally eliminates the taxation of U.S. source income received by U.K. residents. 16 See Article 7 of the U.S. – U.K. Treaty. 17 §864(c)(2). 18 §1441. 19 Reg. §1.1461-1(b). 20 Reg. §1.1441-7(b)(8)(ii)(A)(2). 21 Reg. §1.1441-6(b)(1). 22 Reg. §1.1441-4(b)(2)(ii).
  • LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION Crossing Borders: A Primer On International Taxation For Individuals January 19, 2013 Page 4 of 16 2.3.2. Items of FDAP. “The term [FDAP income] is merely descriptive of the character of a class of income. If an item of income falls within the class of income contemplated in the statute…it is immaterial whether payment of that items is made in a series of payments or in a single lump sum. Further, the income need note be paid annually if it is paid periodically; that is to say, from time to time, whether or not at regular intervals. The fact that a payment is not made annually or periodically does not, however, prevent it from being [FDAP income] (e.g., a lump sum payment). In addition, the fact that the length of time during which the payments are to be made may be increased or diminished in accordance with someone’s will or with the happening of an event does not disqualify the payment as [FDAP income].”23 2.3.3. Exceptions. (i) OID within 183 days or less from original issue.24 (ii) Portfolio interest.25 Generally registered form, non-contingent interest to an unrelated domestic borrower. (iii) Bank interest.26 (iv) Miscellaneous, e.g., gambling winnings.27 2.4. ECI. 2.4.1. Determining ECI. (i) Items of U.S. source income that might otherwise constitute FDAP, and capital gains and losses, are ECI only if: (a) the income, gain or loss is derived from assets used in or held for use in the conduct of the URA’s US TorB; or (b) the activities of the NRA’s US TorB were a material factor 23 Reg. §1.1441-2(b)(1)(ii). 24 §871(g)(1)(B)(i). 25 §871(h). 26 §871(h). 27 §871(i).
  • LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION Crossing Borders: A Primer On International Taxation For Individuals January 19, 2013 Page 5 of 16 in the realization of the income, gain or loss.28 (ii) Income, gain or loss from foreign sources are treated as ECI if the person has a fixed place of business within the U.S.29 2.4.2. Net Election For Real Estate Income. (i) Triple net lease industrial warehouse should not give rise to ECI. (ii) To avoid flat 30%, elect to treat as ECI a U.S. TorB.30 2.4.3. FIRPTA.31 An NRA’s gains or losses from the disposition of both direct and certain indirect interests in USRPI are treated as ECI. USRPIs include interests in domestic corporations that are predominantly invested in U.S. real estate, and indirect ownership in U.S. real estate.32 2.4.4. Use of Entities. To avoid direct tax, return filing obligations, estate tax, NRAs often acquire U.S. assets through U.S.33 or foreign corporations. Must plan to avoid two tiers of tax.34 Of course, use of a foreign corporation means that gains that qualify as LTCG realized by the corporation will not qualify for favorable treatment. 2.4.5. ECI Withholding. (i) W-8ECI provided to withholding agent before payment is made avoids withholding on ECI other than personal services.35 Form 8223 is for the exemption under a treaty for independent contractor services. (ii) There are special procedures for FICA and SECA exemptions, partnership withholding36 and FIRPTA withholding.37 28 §864(c)(2). 29 §864(c)(4). 30 §871(d). 31 §897. 32 §897(c). 33 Sometimes owned through foreign corporations. 34 The corporate income tax plus either the 30% withholding tax on the dividends paid to the foreign shareholder or the 30% §884 branch profits tax imposed on foreign corporations. 35 Reg. §1.1441-4(a)(2). 36 §1446.
  • LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION Crossing Borders: A Primer On International Taxation For Individuals January 19, 2013 Page 6 of 16 2.5. Return Filing And Compliance. 2.5.1. NRA and Foreign Corporation. (i) If NRA is ETB, must file U.S. returns even if no income that is ECI or all of it is exempt.38 1041NR or 1120-F. (ii) If not ETB, no return required if tax liability satisfied by withholding at source.39 (iii) If exempt due to treaty, must attach statement to 1040NR. Form 8333 reports a position that a treaty overrules or modifies the federal tax treatment.40 2.5.2. Foreign Partnerships. (i) Foreign partnership must file a U.S. return if it has U.S. source gross income or ECI.41 (ii) No return required if no ECI, no U.S. partners and withholding satisfies tax.42 2.5.3. Reporting Related-Party Transactions. U.S. corporation at least 25% foreign owned must file form 5472.43 Gives IRS better access to information to enforce transfer-pricing rules. $10,000 penalty. No SOL if not filed. 2.6. Transfer Tax. 2.6.1. NRA estate only includes defined U.S.-situs property. $60,000 exclusion. 2.6.2. For NRA donors, definition of taxable U.S. situs gifts44 is more limited than definition of U.S. situs property. No unified credit. $143,000 annual gift to non-citizen spouse.45 37 §1445. 38 To avoid being taxed on a gross basis in case it is later determined that it earned ECI. 39 Reg. §1.6012-1(b)(2)(i). 40 Reg. §301.6114-1(d)(1). 41 §6031(e). 42 Reg. §1.6031(a)-1(b)(3). 43 §6038A. 44 §2501(a)(2). 45 §2523(i).
  • LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION Crossing Borders: A Primer On International Taxation For Individuals January 19, 2013 Page 7 of 16 2.6.3. QDOTs.46 Unlimited marital deduction to a U.S. citizen spouse. 3. Pre-Immigration Planning. 3.1. Accelerate assets out of estate before NRA establishes U.S. domicile. 3.2. Convert tangible personal property and U.S. real estate to intangible property by contributing to a U.S. or foreign corporation and give the shares.47 Or, encumber U.S. property and give loan proceeds before establishing U.S. domicile. 3.3. Establish and fund foreign trust.48 3.4. Foreign Grantor Trusts. Established by non-immigrant settlor.49 Doesn’t work if the settlor becomes a U.S. resident within 5 years.50 4. Tax Residency. 4.1. Income Tax. Objective: Green Card Test or Substantial Presence Test.51 4.2. Estate and Gift Tax. Domicile. Depends upon intention.52 California’s 13 factors. 5. Expatriation. 5.1. §877A – “Tax responsibilities of expatriation. 5.1.1. Average net income tax liability for 5 years of $124,000 and $2.0 or more net worth. 5.1.2. Exceptions, e.g., dual citizens not resident in U.S. for more than 10 of 15. 5.1.3. §2801. Gift tax imposed on recipient. 5.2. Why? U.S. income tax and transfer taxes. 46 §2056A. 47 Since gifts by an NRA of those assets will give rise to gift tax liability. 48 Avoid §§2035 – 2038. Consider GSTT. 49 §672(f). 50 §679(a)(4). 51 §7701(b)(1)(A). 52 Reg. §20.0-1(b).
  • LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION Crossing Borders: A Primer On International Taxation For Individuals January 19, 2013 Page 8 of 16 5.3. Mark to market. Form 8854. 5.4. Recognition of gain or loss. 5.5. $600,000 exclusion. 5.6. Election to defer the tax. 5.7. Special items: deferred compensation (pensions – 30% - W-8CE), nongrantor trusts. 5.8. Reed Amendment. EXPATRIOT Proposal. 5.9. Planning. Separation agreements. Estate tax planning. 6. Inbound Real Estate.53 6.1. General. 6.1.1. NRAs (not otherwise filing returns). 6.1.2. ECI. Graduated rates. 6.1.3. ETB. (i) nature of the U.S. activities. (ii) level or extent of U.S. activities. (iii) continuity of U.S. activities. (iv) amount of time devoted to U.S. activities. (v) amount of income derived from U.S. activities.54 6.1.4. Spectrum of Facts. (i) Owning a single piece of U.S. real property triple net lease. 53 Much of this material adapted from State Bar Tax Section May 15, 2013 presentation “U.S. Tax Issues In Planning For Foreign Investment In U.S. Real Property,” by Allen Walburn of Allen Matkins and J.P. Harbour (San Francisco). 54 Caballero, Fees & Plowgian, 912-2d, T.M., U.S. Taxation of Foreign Investment in U.S. Real Estate, at A-5.
  • LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION Crossing Borders: A Primer On International Taxation For Individuals January 19, 2013 Page 9 of 16 (ii) Several parcels with significant management required. 6.1.5. Treaties. (i) Business profits tax on a net basis only if due to permanent establishment. (ii) If no PE, business profits (vs. passive) are exempt even if ECI.55 (iii) PE provisions require higher level of business activity before subjecting NRA to net tax at graduated rates. 6.1.6. Net Election. (i) If uncertain if it is a TorB, elect to treat as ECI.56 (ii) Otherwise, if it is determined to be a TorB, 30% withholding on the gross rents (no deductions) by U.S. lessee. (iii) Election is made at partner level if owned through a partnership. 6.2. Foreign Corporations. 6.2.1. If ETB, taxed on a net basis at regular rates. 6.2.2. Branch Level Taxes. (i) Branch profits tax at 30%.57 (ii) Intent: treat foreign corporation’s U.S. TorB as if it were conducted by a separate U.S. corporation. (iii) Tax imposed on “dividend equivalent amount” whether the cash is repatriated to the foreign country or not (iv) U.S. real property is considered a branch of the foreign corpora- tion, so its profits are considered dividends. Most try to avoid this by not having a foreign corporation directly own U.S. real property. 55 Id at A-7. 56 §§871(d) and 882(d). 57 §884.
  • LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION Crossing Borders: A Primer On International Taxation For Individuals January 19, 2013 Page 10 of 16 (v) The BPT does not apply to liquidation proceeds repatriated from the U.S. branch to the foreign country. (vi) Rate often reduced by treaty. 6.3. Return Filing Requirements. 6.3.1. NRAs would prefer not to file U.S. returns. 6.3.2. NRA ETB must file return even if: (i) no ECI. (ii) no U.S. source income. (iii) income is exempt under a treaty or the Code.58 6.3.3. 1120-F and 1040NR. 6.3.4. Those with net election or with ECI under FIRPTA must also file return.59 6.3.5. Return due within 18 months after due date of previous return for corporations and 16 months for individuals. 6.3.6. Protective returns with all zeros to claim right to deductions and credits. 6.4. Withholding. 6.4.1. Passive Income. Rent, interest, dividends, royalties and other FDAP at 30%.60 U.S. partnership must withhold at same rate on gross income to foreign partner. 6.4.2. Treaties. Withholding rate on real property rents is generally not reduced by treaty. 6.4.3. Partnership. Must withhold at highest rate under §§1 or 11 (or LTCG for individual) on 58 Reg. §§1.6012-1(b)(1)(i) and 2(g)(1)(i). 59 Reg. §§1.6012-1(b)(2)(i) and 2(b)(1)(i). 60 §1441.
  • LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION Crossing Borders: A Primer On International Taxation For Individuals January 19, 2013 Page 11 of 16 foreign partners’ allocable share of ECI.61 6.4.4. Required Even If No Cash. 6.4.5. Interactions. Partnership might be required to withhold on foreign partner’s share of gain on sale of real property under §1445 (USRPIs) and §1446 (partnerships). 6.4.6. Personal Liability. For those who fail to pay.62 6.5. Income Tax – Interest and Dividends. 6.5.1. Interest. U.S. source if debtor is a U.S. person.63 30% withholding. Exceptions if not ECI: (i) OID; (ii) bank deposits; (iii) portfolio interest (generally must be registered, non-contingent and unrelated – must be straight debt). Many treaties reduce or eliminate tax. Need ITIN to claim on W-8BEN. 6.5.2. Dividends. U.S. to foreign subject to 30%.64 Treaties typically reduce to 5% - 15%. Use W8-BEN. 6.5.3. Timing Of Documentation. Must provide before the allocation or payment of the applicable U.S. source income to the foreign person. 6.6. Income Tax – Gain on Sale. 6.6.1. FIRPTA. Gain from sale of USRPI is taxed as if TorB and gain were ECI. Does not affect character of the gain. 61 §1446. 62 Reg. §1.1461-1(a)(2). §6672. 63 §861(a)(1). 64 §§1441 and 1442.
  • LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION Crossing Borders: A Primer On International Taxation For Individuals January 19, 2013 Page 12 of 16 Non-recognition provisions, e.g., 1031 and 351, do not apply unless seller receives property that would be taxable under FIRPTA on a later sale or exchange. 6.6.2. USRPI Defined. Fee ownership of land, buildings, other improvements. Mineral deposits. Crops. Leasehold. Time-share. Life estate. Remainder. Sharing in the appreciation of real property, e.g., debt instrument whose rate of return is tied to real estate inflation index. Partnership interest if (i) 50% or more of the value of its gross assets consist of USRPIs and (ii) 90% or more are USRPIs plus cash.65 Any interest in a USRPHC. 6.6.3. USRPHC.66 U.S. corporation holding one or more USRPIs equals or exceeds 50% of FMV of (i) all corporation’s USRPIs; (ii) all non-U.S. real property; and (iii) all other TorB assets. Excess cash not consider if held for future expansion. 5 year test period end on disposition of the interest. But not if on disposition (i) no USRPIs and (ii) all were disposed of in taxable transactions. Foreign corporation cannot be a USRPHC. Avoid FIRPTA by owning U.S. real estate through a foreign corporation or a U.S. corporation which has assets other than U.S. real estate. 6.7. FIRPTA Withholding.67 6.7.1. Required By Buyer. Buyer of USRPI required to withhold 10% of gross. Form 8288 within 20 days of the purchase. California is 3-1/3rd% (Form 593). Withheld taxes are credited against the foreigner’s total tax liability. 6.7.2. Reduction or Elimination. If buyer receives an affidavit certifying seller’s non-foreign status. Affidavit issued by corporation that asset sold is not a USRPI of USRPHC. 65 Temp. Reg. §1.897-7T. 66 §897(c)(2). 67 §1445.
  • LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION Crossing Borders: A Primer On International Taxation For Individuals January 19, 2013 Page 13 of 16 Seller’s actual liability is less than withholding. Form 8288-B.68 Sales price less than $300,000 for buyer’s residence. Sold asset is publicly traded stock. Where withholding required under partnership rules. 6.8. Gift Tax. U.S. tangible and real property. U.S. borrower debt. Active business. Not U.S. stock (big distinction from estate tax) and other intangibles. Probably not partnership or LLC interests. No lifetime exclusion. Annual gift exclusion of $14,000. 6.9. Estate Tax. U.S. situs assets, e.g., real property; U.S. corporate stock; cash at U.S. broker. Not cash in U.S. banks. Partnerships uncertain. If ETB or multi-member, then U.S. situs per IRS. $60,000 lifetime exclusion. $143,000 2013 spousal annual exclusion. QDOT estate exclusion. 6.10 Non-Tax Considerations. Creditor issues. Contrast with home country, e.g., Pflichtteil. 68 Foreign seller must have EIN or ITIN to apply on Form 8288-B.
  • LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION Crossing Borders: A Primer On International Taxation For Individuals January 19, 2013 Page 14 of 16 Privacy. Locals. 6.11. Structuring U.S. Investments. 6.11.1. Direct Investment As Individual Or Through Passthrough Or Disregarded Entity. (i) Advantages. Simple. KISS. One level of tax. LTCG on sale. (ii) Disadvantages. Must file U.S. and possibly state and local returns. Estate tax. 6.11.2. Invest In U.S. Corporation69 Which Owns The U.S. Real Property. (i) Advantages. Need not file U.S. return.70 No U.S. estate or gift tax if foreign corporation owns U.S. stock.71 No gift tax on gift by foreign individual of stock in U.S. corporation. If multiple properties, probably use multiple SMLLCs for liability protection. (ii) Disadvantages. Estate tax if individual holds stock in U.S. corporation. 69 Will be a “C”, since NRA can’t own stock in an “S”. 70 ETB requires filing a return; stock ownership does not. Corporation must file Form 5472 if foreign shareholders own at least 25%. 71 Also no BPT as long as the foreign corporation does not sell the stock of the U.S. corporation.
  • LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION Crossing Borders: A Primer On International Taxation For Individuals January 19, 2013 Page 15 of 16 Two levels of tax: state and federal corporate level and 30% on dividends to foreign shareholder.72 Sale of stock in USRPHC subject to FIRPTA tax and 10% withholding. No LTCG for “C” corporation that sells assets. (iii) Planning. Plan: capitalize with part debt which may be structured as portfolio interest, which is exempt from withholding. If foreigner owns 10% or more of the voting stock, portfolio interest rules inapplicable. So issue less than 10% voting and balance non-voting? Some treaties eliminate withholding on interest payments. 6.11.3. Foreign Corporation Owns The U.S. Real Property. (i) Advantages. Liability protection. No U.S. income tax or filing requirement for foreign shareholder on-going or on disposition of stock. Dividends not subject to U.S. withholding. Refinancing distributions tax free (but U.S. profits and gains from property subject to BPT). Stock not subject to U.S. transfer tax. (ii) Disadvantages. Two levels of income tax (regular plus BPT). Must file U.S. return for ECI and gain on sale of US. real estate. 6.11.4. Foreign Person Invests In REIT.73 72 Reduced to 5% - 15% by treaty. Exceptions from withholding if corporation reasonably estimates it has no current or accumulated E&P and for liquidating distributions to foreign shareholders. 73 §856.
  • LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION Crossing Borders: A Primer On International Taxation For Individuals January 19, 2013 Page 16 of 16 (i) Advantages. Sale of stock in domestically controlled REIT by foreign shareholder is not subject to FIRPTA, though distributions from sale of property are. NRA need not file U.S. return unless gain from stock sale or distribution from sale of property. NRA gets LTCG rates. (ii) Disadvantages. Subject to U.S. estate tax. Cost and complexity, e.g., 100 shareholder requirement.