Need legal advice for LLC opening as a non-US citizen/resident

[Emre Dura]

I'm a new (foreign) investor and just bought a new property in Detroit with cash as a first move. Looking forward to legal advice for LLC opening. any referrals who have experience with international investors? Thx

[Michael Smythe]

@Emre Dura you may want to connect with @Drew Sygit to discuss this in further detail after reading below...

All foreign investors owning U.S. rental property are responsible for paying taxes on any and all rental income they earn in the U.S. regardless of any tax treaties that may exist.

Since some of the regulations and requirements can be confusing, Logical Property Management (LPM) has created this document to summarize the options for a foreign investor.

Foreigner investors can either pay a flat tax of 30% of their gross rental income or elect to file an annual US tax return and reduce their taxes by claiming deductions relating to ownership and managing the property. (i.e. Property Taxes, Insurance, Management Costs, etc.)

With either method of taxation, foreigner investors must have an Individual Taxpayer Identification Number (ITIN).

Obtaining A Taxpayer ID
As soon as possible, foreigner investors need to obtain a U.S. 'Individual Taxpayer Identification Number' (ITIN) for each owner of the property (Each person listed on the property deed). The application is done with IRS Form W-7, and foreigners must provide original certified identification documents.

IRS Form W-7
IRS Form W-7 Instructions

The IRS has 'Certified Acceptance Agents' who are authorized to certify foreigner investors’ original documents and process the application. The W-7 form may look easy to complete, but we highly recommend finding a certified agent to handle it. Certified Acceptance Agents are located worldwide. It normally takes 4-6 weeks for a W-7 to be processed by the IRS.

Here is a link to the IRS website, listing Certified Acceptance Agents by Country:
IRS Certified Acceptance Agents

Upon receiving an ITIN number from the IRS, a copy of the IRS letter showing the new Individual Taxpayer Identification Number (ITIN) must be sent to LPM.

Note: LPM will not manage rental property for foreign owners who refuse to acquire an ITIN number.

Form W-8ECI
The Internal Revenue Service (IRS) requires property managers to withhold 30% of gross rents to ensure foreigner investors will file a tax return at year end. This is obviously very costly and cumbersome for a property manager and Logical Property Management will not do it.

However, there is an alternative that will exempt a foreign investor from the mandatory 30% withholding.

After obtaining an Individual Taxpayer Identification Number (ITIN), submit a completed IRS Form W-8ECI to Logical Property Management.

Note: Do not send the Form W-8ECI to the IRS. You send it to your property manager.

IRS Form W-8ECI
IRS Form W-8ECI Instructions

By filing Form W-8ECI foreign investors eliminate the mandatory 30% tax withholding as it notifies the property manager (and the IRS) the foreign investor will be filing annual tax returns to report their income and expenses related to the rental property. Most generally, Form 1040NR (Non-Resident Tax Return) is filed with the IRS. Those tax returns are due by June 15th of each year and you should consult with your tax professional.

W-8ECI Form remains in effect for a period starting on the date the form is signed and ending on the last day of the third succeeding calendar year, unless a change in circumstances makes any of the information on the form incorrect. For example, a Form W-8ECI signed on September 30, 2020, remains valid through December 31, 2023. Upon expiration of the 3-year period, you must provide a new Form W-8ECI.

If you do not file a form W-8ECI with your property manager, your property manager is REQUIRED by law to withhold 30% of your income from the rental and forward the funds to the IRS.

Legal Disclaimer: The material provided here is for informational purposes only and is not intended and should not be considered as legal advice for your particular matter. You should contact your attorney and/or tax professional to obtain advice with respect to any particular issue or problem. Applicability of the tax or legal principles discussed in this material may differ substantially in individual situations.