International lending - tax and legal implications

[Arianne L.]

Hello BP community! I have relatives who have expressed interest in becoming private lenders for our real estate business. The complicated thing is, they are based in different countries. Australia, New Zealand, Saudi Arabia and the Philippines. I have done some preliminary reading but would like to know if someone has more experience in international lending/borrowing and could provide their insight. 

1) What are the tax implications for the US side? Someone mentioned that the individuals could file a US tax return vs the 28% withholding. 

2) Is there anything specific I need to consider with regards to the SEC

3) Any other pitfalls I might run into?

4) Do you have any general experiences you can share about the process?

Thank you very much for taking the time to provide your insight. It is greatly appreciated!

[Rajeev Kotyan]

Yes it can be done, but there are numerous steps that have to be followed:

(1) Opening and holding accounts for international persons in the US, if in their name, there are variations with each country of citizenship and residence of the individual. If in name of an entity, there are additional filing documents with the Secretary of State where the entity shall be opened (entity method is best to work with a qualified attorney with international clientele knowledge)

(2) Anti-Money Laundering: This is a check that many a banks do and one would have to manage appropriate documentation for both inbound and outbound funds.

(3) Taxation: This varies based on bi-lateral treaty with the US for each country of citizenship and residency, but you have the general rule of thumb identified in your point (1).

(4) If it is perceived as a capital raise in the US (whether from domestic or international sources), then the SEC items matter and a qualified professional can guide you through that.

(5) Depending on the amounts of money, that is being lent and the types of loans, you can be perceived as a financial lender, so a lending licensing may be a requirement in each state.