The acquisition of real estate in the United States requires a serious approach to tax planning.
Throughout the world there has been a dramatic increase in the demand for acquisition of immovable property in the United States. Undoubtedly, this was the result of the strong position of the Euro compared to the us dollar, the fact that investment in the United States promises good profits along with the low level of risk, or the possession of the joint property in the United States, are already quite a tempting solution. Not so long ago in the «Miami Herald» was published an article telling about the results of the research showed that the majority of foreign homeowners in Florida not from Latin America and from Europe. On the account of the Europeans 58% of the property purchase by foreigners in Florida. Only in the United Kingdom, as the article says, account for a third of all international transactions for the purchase of real estate. However, when buying real estate in the United States have to take into account not only the value of the property, - the amount of tax due, no doubt, is an extremely important point.
Foreign investors always difficult to explain the complexity of the tax burden inherent in investing in real estate in the United States. Taxation is a significant item of expenditure which can be minimized, and in some cases it can even be avoided provided professional investment planning. But make no mistake, the tax laws of the United States is very complicated, and sometimes reaches the point of absurdity.
Attention of the Congress focused on foreign investment in U.S. real estate since 1980. It was then that the Congress adopted the Law on the taxation of foreign investments in real estate of Foreign Investment in Real Property Tax Act (FIRPTA)). It was designed so that foreign investors will have to, at least, to pay the same amount of income tax that before, after the sale of real estate, in which funds are invested, or another way of its alienation. In addition, foreign citizens, investing in the United States, have always been forced to pay tax on the U.S. real estate and tax on the donation. The complexity of the system of income tax in addition to the intricate pattern of the real estate tax and tax on the donation created a dangerous labyrinth, out of which appears to be possible only with a stock of patience and caution.
In fact, the income tax system the United States exposes the foreign investors taxed in accordance with one of two possible tax regimes. The first applies to «relevant» profit investors who are engaged in a «trade or business» on the territory of the United States. Such activity allows to impose any tax on the net profit at the same rates that apply to the income of the citizens or residents of the United States. In accordance with FIRPTA ownership of immovable property is considered as the implementation of a trade or business activity.
Second is the «passive» investors, i.e. those who are not engaged in a «trade or business», the total volume of their relevant income, as a rule, be taxed in the amount of 30%. This tax becomes more tangible for the taxpayers, who are required to deduct tax at source or forced to clean up the goods from the customs duties. Of course, it should be noted that tax treaties may reduce or completely exempt from the tax burden.
However, Congress is not so simple. Never for a moment forgetting their share of the tax, he shall also make every effort in order to help investors «get rid» of the Finance by way of their investments in the United States. In order to attract investment, Congress created the «tax exemption for profits from portfolio investments», which allows the investors to invest in the United States, for example in real estate, and to receive interest income without the need to pay taxes or contributions. In General, interest income on portfolio investment easily structured and has a rather wide interpretation.
In any case, the tax agreement, which the U.S. has signed with many European countries, can significantly reduce passive income tax or even to release him from the payer, which otherwise subject to the interest income. However, it is worth noting that such agreements have their nuances. The interest payable may be subject to «cleaning income», which is designed to cancel the deduction from taxable income, which have been possible in the absence of these rules. Despite this, when all is said and done, many investors still gain more by investing in the U.S. in order to obtain tax exemption for profits from the portfolio investment, than if they had invested in the share capital.
Many foreign investors are going the easy way of use of a foreign Corporation for the ownership of real estate in the United States. Congress took care of this and introducing a tax on the profit of the subsidiary companies. In two words this tax is imposed on the branch of a foreign company in the United States, as if the branch is a Corporation of the United States. In fact, a tax on the profit of the subsidiary companies is close to 30% tax on passive investments. The difference is that he is even more confused. Completely ignoring the details, we can say, that the tax on profit of the subsidiary companies is calculated from the volume, equivalent to the dividend to a foreign company. This amount is taxable profits of the Corporation, directly trade-related real estate or business activities.
Do not forget and about the tax to the immovable property, tax, gift and property transfer in a generation. Importantly, any foreign investor or the executor of his will, the fall in the tax quagmire, shall file a tax Declaration, in which is revealed the full extent of his immovable property, in whatever country it may be, but also highlighted the share of this property, located on the territory of the United States. The real estate tax and tax on the donation shall be payable to the persons living on the territory of the United States or, in General, have the property, located on the territory of the USA.
But what about the property, which is in the property of the partnership? Of course, you think, that in 25 years after it was adopted the Law on the taxation of foreign investments in real estate, everything was put in its place. We should make no mistake, when it comes to the tax legislation of the United States. In reality it remains unclear whether the partnership as intangible private property, as the shares of the Corporation on the theory of the legal person, or an undivided right to the assets underlying the partnership, " on the theory of aggregate assets. If the partnership is treated as a legal entity, a partnership interest in the property of the foreign partner, which is located on the territory of the United States, regardless of whether the partnership to foreign or local. However, if the partnership is considered as a totality of assets, the tax is imposed on the location of the property in question.
So what is an expert on tax law may advise a foreign investor willing to buy a nice condominium in Miami, it is possible commercial property, holds out the promise of a good income, or even a few acres of незастроенного site? It's not a secret, the acquisition of property through a company with limited liability with the sole participant has certain advantages, such as the ease. As well as a number of shortcomings, such as the tax on real estate, gift, and the need to apply in person a whole pile of tax declarations. The case could help the American Corporation, but the investor will still be obliged to pay the Federal tax on real estate. He also faced with the need to level of taxation of profits of the Corporation and will file a tax Declaration disclosing the name, address and identification number of a taxpayer who owns 50% or more of the share capital of the company.
A foreign Corporation may also be of interest, however, the drawback is a similar scheme of double taxation, including the tax on the profit of the subsidiary companies and the necessity of submission of tax declarations, which reveal the name, address and taxpayer identification number of certain shareholders. In spite of the fact that the tax on real estate and gift will be possible to avoid, the provisions of the Act on taxation of foreign investments in real estate will still apply.
