Foreign Buyers
Don’t let FIRTA slow you down. Our team helps foreign buyers navigate the process efficiently.
Foreign Buyers
We help foreign buyers navigate the process efficiently
Selling US assets, real estate, or businesses requires expertise to ensure compliance with IRS FIRTA regulations. While most buyers of US real estate assets might not be aware of FIRTA IRS rules when making a purchase, it’s imperative to establish a solid FIRTA IRS structure to reduce your 30% holdback at the time of closing. Perhaps buyers have not been correctly advised by realtors when purchasing real estate assets in the US, but we strongly urge our buyers to sit down with our team of Foreign National Attorneys and CPAs who understand IRS FIRTA compliance rules to ensure all legal requirements are met and aligned with your financial goals. Buying and holding US real estate assets might seem simple, but the truth is, it’s not! In Miami, foreign buyers are purchasing US real estate assets every day and discovering at the time of closing the common FIRTA IRS rules that some have failed to inform them about. Let our team of licensed professional’s address all your questions before you decide to make your purchase; get the facts first so your investments will deliver the yield and returns you have projected.
Please read the article below from the IRS:
Withholding of Tax on Dispositions of United States Real Property Interests
The disposition of a US real property interest by a foreign person (the transferor) is subject to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) income tax withholding. FIRPTA authorizes the United States to tax foreign persons on dispositions of US real property interests.
A disposition means “disposition” for any purpose of the Internal Revenue Code. This includes but is not limited to a sale or exchange, liquidation, redemption, gift, transfer, etc. Persons purchasing US real property interests (transferees) from foreign persons, certain purchasers’ agents, and settlement officers are required to withhold 15% (10% for dispositions before February 17, 2016) of the amount realized on the disposition (special rules for foreign corporations).
In most cases, the buyer (transferee) is the withholding agent. The transferee must determine if the transferor is a foreign person. If the transferor is a foreign person and the transferee fails to withhold, the transferee may be held liable for the tax. In cases in which a US business entity, such as a corporation or partnership, disposes of a US real property interest, the business entity itself is the withholding agent.
US Real Property Interest
A US real property interest is an interest, other than as a creditor, in real property (including an interest in a mine, well, or other natural deposit) located in the United States or the US Virgin Islands, as well as certain personal property that is associated with the use of real property (such as farming machinery). It also means any interest, other than as a creditor, in any domestic corporation unless it is established that the corporation was at no time a US real property holding corporation during the shorter of the period during which the interest was held or the 5-year period ending on the date of disposition (applicable periods).
An interest in a corporation is not a US real property interest if:
Such corporation did not hold any US real property interests on the date of disposition, All the US real property interests held by such corporation at any time during the shorter of the applicable periods were disposed of in transactions in which the full amount of any gain was recognized, and For dispositions after December 17, 2015, such corporation and any predecessor of such corporation was not an RIC or a REIT during the shorter of the applicable periods during which the interest was held.
Rates of Withholding
The transferee must deduct and withhold tax on the total amount realized by the foreign person on the disposition. The rate of withholding generally is 15% (10% for dispositions before February 17, 2016).
The amount realized is the sum of:
The cash paid or to be paid (principal only), The fair market value of other property transferred or to be transferred, and The amount of any liability assumed by the transferee or to which the property is subject immediately before and after the transfer.
If the property transferred is owned by a foreign person and at least one other person, the amount realized is allocated between the transferors based on the capital contribution of each transferor.
A foreign corporation that distributes a US real property interest must withhold a tax equal to 21% of the gain it recognizes on the distribution to its shareholders who are foreign persons.
A domestic corporation must withhold tax on the fair market value of the property distributed to a foreign shareholder if:
The shareholder’s interest in the corporation is a US real property interest, and The property distributed is either in redemption of stock or in liquidation of the corporation.
For distributions before February 17, 2016, the corporation generally must withhold 10% of the amount realized by a foreign person. For distributions after February 16, 2016, the rate increases to 15%.
For additional information on the withholding rules that apply to corporations, trusts, estates, and REITs, refer to section 1445 of the Internal Revenue Code and the related regulations. For additional information on the withholding rules that apply to partnerships, refer to the discussion under partnership withholding. Also, consult the “US Real Property Interest” section in IRS Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities.
FIRPTA documents are processed at:
Internal Revenue Service Center P.O. Box 409101 Ogden, UT 84409
