Investment in US real estate by non-US investors is increasing. Non-US investors acquired almost $23 billion in US real estate, representing a 9% increase over 2012 and accounting for 13% of all real estate transactions in the US from January through August of 2013.* Given this trend, real estate investment advisors and others involved in real estate transactions in the US need to understand how to structure these investments in the most tax-efficient manner possible. https://www.dlapiper.com/en/us/insights/publications/2014/07/non-us-investors-in-us-real-estate-content-piece/

1. For more information about these issues, please contact John Sullivan or Robert LeDuc.
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3 RED LIGHTS AND 3 GREEN LIGHTS FOR
NON-US INVESTORS IN US REAL ESTATE:
TAX CHALLENGES AND SOLUTIONS
3 TAX IMPEDIMENTS TO NON-US INVESTMENT IN US REAL ESTATE
Effectively Connected Income: Income and gain from non-
US investors real estate investments are generally taxable
under the effectively connected income (ECI) rules,
specifically, rental income and/or gains from the sale of
US real estate.
FIRPTA: The Foreign Investment in Real Property Tax Act
(FIRPTA) imposes significant taxes on dispositions of US
real property interests. Complicated withholding tax rules
apply regarding US counterparties.
Non-US Regulatory Concerns: In addition to US tax
issues, non-US investors can have non-US tax and
regulatory concerns. For example, non-US investors
may need to comply with certain informational reporting
requirements in their home jurisdictions.
3 STRUCTURING SOLUTIONS
Foreign Investor as Lender: Rather than owning a
partnership interest in a fund or equity in a US real
property holding corporation, a foreign investor may make
a loan secured by US real estate.
Offshore Blockers: One may acquire US real property
interests in an offshore corporate entity and transfer the
equity in such an entity entirely free of US tax. However,
any well-advised buyer would discount the purchase price
of such an offshore corporation for the embedded US tax.
If this offshore corporation is formed in a tax haven, any
effectively connected income will not only be fully taxable
under US rates, but also be subject to an additional 30%
branch profits tax.
REITs: Often utilized by non-US investors to either
minimize or avoid US federal income taxation, REITs’
benefits include avoiding state tax filings for the
jurisdictions where the REIT owns assets and converting
rental income into dividend payments. However, gains
that a REIT derives from dispositions of US real property
interests will be taxable under FIRPTA in the hands of a
non-US investor.
* According to Real Estate Analytics
Investment in US real estate by non-US investors is increasing. Non-US investors
acquired almost $23 billion in US real estate, representing a 9% increase over
2012 and accounting for 13% of all real estate transactions in the US from January
through August of 2013.*
Given this trend, real estate investment advisors and others involved in real estate
transactions in the US need to understand how to structure these investments in the
most tax-efficient manner possible.