Foreign Direct Investments (FDI’s)

There are 3 major tax areas that a foreign investor must consider:

Two additional consideration also drive the structure:

Individual Ownership/Pass Through Entity - Individual ownership of real property by a non-resident alien or ownership through a pass through entity (partnership, LLC) results in the nonresident alien being required to file a U.S. tax return and most likely subjects him or her to estate taxes on the real property.  However, it is often the best vehicle for income tax purposes because there is a single layer of tax and the depreciation deduction

Real Estate Holding Company Structure  - A Foreign Investor involved in the active real estate business, such as ownership of income producing property or development property, may as a general rule invest in the following fashion. The Foreign Investor will form a foreign holding corporation that then is the 100% owner of a domestic (U.S.) corporation, which is the direct real estate owner.

This structure can eliminate at least two of the three taxes that the Foreign Investor might face.  Since the direct investor in the real estate is a domestic corporation, it need not pay any Branch tax on its profits.  Since the Foreign Investor owns only shares in a foreign corporation, there is no estate tax upon his or her demise. The income tax, however, is generally unfavorable as compared to individual ownership.