All Forum Posts by: Danay Ramirez

Income tax: A foreign investor receiving rental income from U.S. real property must pay income tax. Usually, the rental income is considered effectively connected with a U.S. trade or business, and therefore, it is taxed under the effective regime. This means that the tax is calculated on the net rental income (i.e., income - expenses).

Individual foreign investors pay income tax at graduated rates up to almost 40%. However, after depreciation and other deductions, foreign investors usually end up paying an effective tax rate of 20% or less.

Capital gain tax: Upon the sale of the property, foreign investors will pay capital gain taxes on the gain of the property (Capital gains = selling price - cost - selling expenses). Unlike corporations, individuals are eligible for favorable capital gain rates of 15% - 20%. This is a vital advantage of this ownership type.

Withholding taxes: A foreign person’s U.S. real property interest disposition is subject to income tax withholding under FIRPTA. The transferee must deduct and withhold a tax rate of 15% of the total amount realized by the foreign person on the property’s disposition. This withholding is an estimated tax on your potential capital gain taxes.

Estate and gift taxes: If a foreign investor buys U.S. real estate under their name, the real estate property will be subject to U.S. estate tax upon the death of the foreign investor. This is the main disadvantage of owning the property at the personal levelForeign investors are generally subject to an estate tax rate of up to 40% on the property’s value above the allowed exemption of $60,000. Executors for foreign investors must file an estate tax return or Form 706-NA.

Tax compliance: If a foreign investor owns U.S. real estate under their personal name, they must file individual income tax returns with Form 1040-NR. This requirement is another significant disadvantage of individual ownership.

Repatriation of funds: One valuable advantage of individual ownership is the repatriation of funds. After selling the property, paying the taxes, foreign investors can bring their money back to their home country without any additional U.S. tax implications. Unlike corporations, there is no double taxation when owning the property personally.

Summary: Individual ownership is the simplest and most cost-effective way of owning U.S. real estate. This structure offers lower income and capital tax rates compared to other entity options.

However, owning real estate under your name has disadvantages such as the imposition of the estate tax, the requirement to file individual income tax returns in the U.S., and the consequential lack of anonymity.

If you wish to establish your business in and move to the United States, it is imperative to understand the types of visas that are available for foreign real estate investors. If you decide to obtain an immigration visa, you should consult with an immigration lawyer and your CPA about the pros and cons of each type of visa.

The primary visa options for foreign real estate investors are E-1, E-2, and EB-5. Each visa has distinctive characteristics with which you can define the field of your business and the type of visa you need.

E-1 - Visa for traders and investors

The E-1 is a visa for foreign real estate investors from countries that have trade treaties with the U.S. The E-1 Visa will allow you to remain in the United States for two years. If you meet the conditions, you can apply for an extension that will make your visa valid for longer.

The following countries have trade treaties with the United States that allow qualifying nationals to apply for Treaty Trader status: Argentina, Australia, Austria, Belgium, Bolivia, Brunei, Canada, China, Colombia, Costa Rica, Denmark, Estonia, Ethiopia, Finland, France, Germany, Greece, Honduras, Iran, Ireland, Israel, Italy, Japan, Korea, Latvia, Liberia, Luxembourg, Mexico, Netherlands, Norway, Oman, Pakistan, Philippines, Spain, Suriname, Sweden, Switzerland, Thailand, Togo, Turkey, U.K., and Yugoslavia.

E-2 - Visa for traders and investors

The E-2 Visa is a favorite option for foreign real estate investors who want to live and work in the U.S legally.

The E-2 Visa permits a foreign real estate investor to either buy or start a business in the U.S. through an investment of a substantial amount of capital. For the E-2 Visa to be approved, the investment needs to be significant. You must choose the type of business you plan to establish in the U.S. in order to apply for this visa.

In our experience, we have seen the following businesses qualify for the E-2 Visa:

• Real estate construction
• Real estate flipping
• Real estate management
• Real estate brokerages

What is the difference between E-1 and E-2 Visas?

The E-1 Visa is for foreign real estate investors from countries that have trade treaties with the U.S. The E-2 Visa is for foreign real estate investors who either buy or start a business in the U.S. through an investment of a substantial amount of capital.

What are the advantages of E-1 and E-2 Visas?

The E-1 and E-2 Visas allow you to travel in and out of the U.S. without immigration implications. These visas allow you to bring your dependents and your spouse. As long as you continue to qualify for one of these visas, you can stay in the U.S. with unlimited two-year extensions.

Do E-1 and E-2 Visa holders have to pay taxes in the U.S.?

The answer to this question depends on your tax status. It is important to notice that your tax status is relevant only for tax purposes. Your tax status does not affect your visa status. If you are considered a resident for U.S. tax purposes, you will most likely have to pay taxes on your worldwide income. If you are considered non-resident for tax purposes; you will only have to pay taxes on your U.S. Income.

What makes you a U.S. tax resident?

You will be considered a U.S. resident for tax purposes if you are a U.S. citizen or a green card holder or if you meet the substantial presence test for the calendar year,
You meet the substantial presence test, if you are physically present in the U.S. for 31 days during the current year, and 183 days during the 3-year period including all days of the current year, 1/3 of the days you were present in the first year before the current year, and 1/6 of the days you were present in the second year before the current year.

You should consult with your international tax CPA because there are elections that override the green card test and the substantial presence test that may be beneficial for tax purposes, as follows:

• Elections under certain tax treaties
• Closer connection election to a foreign country
• First-year election to be treated as a resident for tax purposes
• Nonresident spouse treated as U.S. resident for tax purposes

Immigrant Investor Visa Program (EB-5)

The EB-5 Visa, or Immigrant Investor Program, aims to stimulate the country’s economy by using foreign investors.

In 1992, Congress created the Immigrant Investor Program, also known as the Regional Center Program. This program sets aside EB-5 visas for participants who invest in commercial enterprises associated with regional centers approved by USCIS based on proposals for promoting economic growth. Under this program, minimum investments between $900,000 and $1,800,000 are required to create a new company that employs U.S. citizens.

Does the EB-5 Visa lead to a Green Card or permanent residence?

Under the EB-5 program, foreign real estate investors, along with their spouses and unmarried children under 21, are eligible to apply for permanent residence with a Green Card if they make the necessary investment in a commercial enterprise. Their investment must create or preserve ten permanent full-time jobs for qualified U.S. workers.
If the foreign real estate investor’s petition is approved, the investor and their dependents will be granted conditional permanent residence valid for two years. Be careful to choose a reputable regional center so you meet the requirement for obtaining an unconditional Green Card. Please, please do not go along with this type of visa and investment. You should be represented by an immigration attorney.

Can the children of the applicant’s spouse obtain the E Visa?

Yes. Your spouse and children under the age of 21 qualify for an E Visa derivative, based on the qualifications of the primary applicant. They do not need to have the nationality of the principal applicant.

When a spouse’s or child’s surname differs from the primary applicant’s surname, as their names appear on the passport, then the applicant must prove the relationship’s legitimacy. Most often, this is established with a marriage certificate, birth certificate, and other legal documentation. Common-law spouses and fiancés do not qualify for the derivative of this visa.

Do you need a lawyer to apply for your visa or Green Card in the U.S.?

You are not required to hire a lawyer when applying for an immigrant visa or Green Card. However, we strongly recommend that you hire a qualified immigration attorney to help with your Green Card or visa application.
Moving to the U.S. is a significant, life-changing decision that could have substantial ramifications. You are moving your family to a new country, and in most cases, you are selling your properties back home. Your children will be attending a new school, and you are investing in a new market. There is no understating the significance of this life-changing event.

If you don’t use an attorney, you risk getting your visa revoked and having to return to your country of origin. To avoid that possibility and secure your U.S. immigration visa status, we strongly recommend that you work with a qualified immigration attorney. H&CO does not practice law, but we can provide you with a list of immigration attorneys that we have been working with to help our clients.

Yes, foreigners can invest in U.S. real estate. There are no citizenship requirements for the ownership of U.S. real estate, and investors do not need a visa in order to purchase U.S. property. Foreign investors can buy real estate property in the U.S. under their names or through various entities such as a trust, a corporation, or an LLC. However, foreign investors must pay attention to the international tax laws that impact U.S. investments. By familiarizing yourself with these real estate tax laws, you will be able to minimize your tax exposure.

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Shareholders must be individuals, certain trusts or estates. Shareholders also must be U.S. citizens or legal residents. Partnerships and corporations cannot be shareholders.
To elect for S-Corp treatment, file Form 2553. You can make this election at the same time you file your taxes by filing Form 1120S, attaching Form 2533 and submitting along with your personal tax return