FOREIGN INVESTMENT IN U.S. REAL ESTATE
Royse Law Firm, PC149 Commonwealth Dr.Menlo Park, CA [email protected]
www.rroyselaw.comSkype: roger.royse
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OUTLINE
1. Introduction and Importance of Real Property Investment by Foreigners
2. Taxation: Relevant Basics and Reporting
3. Relevant Entity Tax Issues
4. FIRPTA and Related Tax Rules
5. Federal Transfer Tax Considerations
6. Tying It All Together: Structuring Foreign Investment in U.S. Real Estate
7. California State and Local Taxes
8. (End) Takeaways
Unless otherwise
stated, all § references
are to the Internal
Revenue Code of
1986, as amended
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INTRODUCTION AND IMPORTANCE OF REAL
PROPERTY INVESTMENT BY FOREIGNERS
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SIZE OF THE MARKET• Numbers vary, but sources in general give a range of around
$50-80B volume in cross-border transactions in the U.S. yearly
• The U.S. has the world’s preeminent real estate market, with trading volume rising 25% in 2015 (to 39% of all global trading)– World property trading fell in 2015 by 2.4%, the first downturn in 6
years, as measured by $USD
• Cross-border investment rose by over 70% in the U.S., helping to offset a drop in domestic activity of 5%
• Overseas investors increased their market share from 10% to 18.1%, the highest on record
Sources
Cushman & Wakefield Capital Research Markets Publication Atlas Outlook 2016 (available online)
http://nreionline.com/finance-investment/foreign-investment-us-real-estate-assets-hit-record-high
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• External drivers: The U.S. real estate market is perceived as a (relatively affordable) safe investment. Contrast:– Economic uncertainty in China;
– The refugee crisis in Europe;
– Brexit; and
– The recession in Brazil
• Internal drivers: The U.S. real estate market has a favorable legal and economic environment. Key drivers include:– Congress’s continued easing of curbs on foreign real-estate investors;
– Low interest rates (which now seem likely to remain low);
– A relatively stable U.S. economy (which at least is reliable for parking capital); and
– The liquidity and transparency of the U.S. real estate market
WHY FOREIGNERS INVEST IN U.S. REAL ESTATE
Sources
http://nreionline.com/finance-investment/foreign-investment-us-real-estate-assets-hit-record-high
http://www.ibtimes.com/us-real-estate-attracting-more-foreign-investment-2016-new-york-city-remains-top-2247705
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• In the U.S., real estate is a tax-driven industry; it is not a coincidence the original tax shelters revolved so heavily around it– Domestically, like-kind rules, depreciation, interest deductions, loss
limitations, and other tax rules can make or break real estate ventures
– Foreign investors face all these usual rules, plus a bevy of additional rules covered in large part herein
• If not planned for, US taxation on ownership and disposition of real estate, as well as US tax reporting requirements, can be burdensome and greatly reduce the yields of a would-be real estate investor
IMPORTANCE OF THE TAX REGIME
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FEDERAL TAXATION:RELEVANT BASICS AND REPORTING
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INCOME TAX, GENERALLY
• Individual rates: 10%-39.6%,
– Plus employment or NIIT (if applicable)
– Individuals receive special reduced rates on long-term capital gains
• Corporate rates: 15%-35%
– Corporations do not receive reduced long-term capital gains rates
• International rules
– U.S. taxpayers taxed on worldwide income
– Foreign taxpayers taxed on certain U.S. related income
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NIIT AND SELF-EMPLOYMENT TAX• What is the net investment income tax (NIIT)?
– As part of the Affordable Care Act, a 3.8% surtax was added to the income tax system, intended to tax passive income of high income individuals, trusts, and estates
• Nonresident aliens are exempt from the NIIT. §1411(e)(1)
• Self-employment tax applies to salaries from corporations and allocations from partnerships– Does not apply to allocations to limited partners (in their capacity as
passive limited partners), or corporate distributions (including S-corporations, if not recharacterized as salary)
• Nonresident aliens are exempt from self-employment tax. §1402(b)– Can enter into an agreement to be covered under SSA §233
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INTERNATIONAL TAX FOR FOREIGNERS
Effectively Connected Income (ECI)
• Net income effectively connected with a U.S. trade or business (/permanent establishment, if treaty applies)
• Taxed at rates noted earlier
Fixed, determinable, annual or periodical (FDAP) income
• Gross income from activity not rising to level of trade or business—can include rents
• 30% withholding rate, may be reduced by treaty
• Does not cover gain on sales by foreigners
ECI Election for Foreign Holders of U.S. Real Property
• Allowed under IRC §§871(d) and 882(d)
• Why use it? Because net income approach generally more favorable when holding real property, due to income sheltering from, e.g., depreciation
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NOTABLE REPORTING REQUIREMENTS
• FATCA: – Non-US entities which are treated as foreign financial institutions
must perform reporting,
– If they do not, payors to such entities must withhold tax.
• §6038A proposed regulations: – Foreign owners of U.S. disregarded entities will have to report about
themselves, keep appropriate records for tax.
– Already considerable reporting for other foreign-owned U.S. entities
• FinCEN new reporting requirements: For title insurance companies in New York City and Miami, Dade County. – Such companies must file a FinCEN Form 8300 within 30 days of an
all-cash purchase of real estate worth over $3 million in Manhattan, or over $1 million in Miami, Dade County
– Identifies the purchasing entity and any individual who beneficially owns 25% or more of the purchasing entity.
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OVERVIEW OF
U.S. TRANSFER TAXES
APPLICABLE TO NON-RESIDENT NON-CITIZENS
Transfer Type General Tax Concept Applicable Tax Base
Lifetime Gift Tax on Transferor at 18% - 40% Property transferred with US situs (other than intangibles)
Bequest or Devise at Death
Tax on Estate at 26% - 40% of everything over $60,000 FMV
Property deemed “U.S. Situs” propertyBEWARE-This is non-intuitive analysis!
Generation-Skipping Transfer
Additional Tax on Transferor (whether during lifetime or at death) at 18% - 40%
Anything that is subject to Gift Tax or Estate Tax under the above rules
Gifts, Bequests, or Devises to Non-citizen Spouse
Estate or Gift Tax Applies per above unless transferred at death via Qualified Domestic Trust (QDOT) with U.S. Trustee
All “US Situs” assets transferred as per Estate and Gift Tax base rules above; except for lifetime gift under annual exclusion ($148,000 for 2016)
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RELEVANT ENTITY TAXATION BASICS
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BASIC ENTITY REGIMES
Other specialized entity regimes exist, but are beyond scope of presentation
LLC Corp.LLC or
Partnership
Disregarded Entity
As if directly owned
Partnership
1x tax, entity is for accounting
C-Corporation
2x tax (corp., dividend)
Tax Tax
Tax
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REAL PROPERTY IN CORPS. VS. PARTNERSHIPS
Issue C-Corporations Partnerships
Long-term capital gainsrates on disposition?
Not available Available
Ability to pull cash out tax free after, e.g., refinancing?
Not available Generally available
Ability to flow through losses?
Not available Available (but subject to many anti-loss rules)
Tax of owners during ownership phase?
No; corporation is taxed
Yes; but keep in mind there is typically very little net income from real property thanks to high amount of deductions
Domestically, almost always better to have a partnership as a real
property investment vehicle. Foreign investors? We will see . . .
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CORPORATE AND BRANCH PROFITS (BP) TAX
Foreign Person
Foreign Corp.
U.S. Corp.
When Foreign Corp.
dividends money, U.S. tax
system is irrelevant
When U.S. Corp dividends
money to Foreign Corp.,
there is a withholding tax
(FDAP)
When U.S. Corp earns
money from U.S. trade or
business, it is taxed
(domestic tax rules)
Example #1: CorporateForeign Person
[No U.S. Corp]
Same structure as
Example #1, except no
U.S. Corp.
Like Ex. #1, no U.S. tax
when Foreign Corp.
makes dividend
Unlike Ex #1, no U.S.
Corp, so no U.S.
withholding tax
Foreign Corp. taxed on
U.S. trade or business
earnings (ECI)
Example #2: Branch (in a world w/o BP Tax)
U.S. Trade or Business
U.S. Trade or Business
Foreign Corp.
But branch profits tax does exist (example #2 cannot happen under modern
U.S. tax law), and causes rough parity between the two examples . . .
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CORPORATE AND BRANCH PROFITS (BP) TAX
Foreign Person
[No U.S. Corp]
Same structure as
Example #2
Like Ex. #1, no tax when
Foreign Corp. makes
dividend
Unlike Ex #1, no U.S.
Corp, so no withholding
tax. Instead, branch
profits tax applies
Foreign Corp. taxed on
U.S. trade or business
earnings (ECI)
Example #3: Branch (with BP Tax)
U.S. Trade or Business
Foreign Corp.
• The Branch Profits Tax essentially
creates a “simulated” U.S. Corp. for
dividend purposes
• Branch profits slightly worse than
corporate tax, because less control
of timing of dividend equivalents
• Core concept: Tax “dividend equivalent
amount” like dividend from U.S. Corp:• Dividend equivalent amount = (ECE&P)
– (increase in U.S. net equity)
• ECE&P = Earnings of Foreign Corp.
from U.S. Trade or Business
• U.S. net equity = Amount of money
deemed reinvested in U.S. Trade or
Business at start and end of year
• Branch profits tax triggers only if a
foreign corporation has net profit in a
U.S. trade or business
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TRUSTS
• Only trusts used for certain non-active-business purposes will be given trust taxation– Else, may end up taxed as a corporation
• Trust for income tax purposes either treated as: – Disregarded entity (grantor trust), or
– Entity taxed under fiduciary income tax rules, which is taxed on income it does not distribute to beneficiaries
• Special trusts exist as well
• To discourage stashing income in foreign trusts, U.S. has penalty throwback rule on distributions from such trusts – Be careful
• Trusts under the fiduciary income tax rules may be able to create long-term capital gains where beneficiaries (e.g., corporations) would have had the ability to do so
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FIRPTA AND RELATED TAX RULES
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THE WORLD, PRE-FIRPTA
• Until 1980, a foreign person could, with planning, dispose of U.S. real property without incurring any U.S. tax liability.
• Gain on sale of U.S. real property was subject to U.S. taxation in two circumstances: – If the gain was ECI; or
– If the person was an individual present in the United States at least 183 days in the year, the gain would be subject to a flat 30% tax
• A foreign person could always avoid U.S. taxation by dealing indirectly in U.S. real property, through ownership interests of an entity holding U.S. real property
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FIRPTA—WITHHOLDING AND TAX EFFECTS
Foreign Investment in Real Property Tax Act of 1980 (FIRPTA)
• Income from disposition of U.S. Real Property Interest (USRPI) is ECI
• 15% gross withholding by buyer acquiring USRPI– This is not the final tax due—it is merely an advance payment
(potentially too high or too low)
– 10% gross withholding for dispositions before February 17, 2016
• Exemptions from FIRPTA withholding– Affidavit of non foreign status– Non recognition transactions– Qualified foreign pension fund
• 2015 addition
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DEFINING USRPIS AND USPRHCS
• USRPIs are non-creditor interests in real property, either direct or through an intermediary entity– “Real property” includes land, certain natural products and
improvements thereof, and personal property “associated with the use of the real property”
– Includes stock in a USRPHC
• A corporation is a U.S. Real Property Holding Corporation (USRPHC) if more than 50% of its assets (measured on a fair market value basis) are comprised of USRPIs at any time during a five-year period preceding the sale of its stock by its foreign owner– Cleansing exception: Interests in a USRPHC are not considered USRPI
if, at the time of the sale of the USRPHC interests, the USRPHC has disposed of all U.S. real property in one or more taxable transfers.
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NOTABLE WITHHOLDING MECHANICS
• IRC § 1445 imposes the FIRPTA withholding tax– 15% gross income advance payments
– Due 20 days after transfer date
• IRC § 1446 imposes withholding tax for a domesticpartnership that receives ECI allocable to its foreign partners – Tax is calculated at the partner’s highest statutory rate, based on net
ECI so allocated
– Withholding done quarterly
• §1446 preempts §1445 where both apply– This means you can essentially elect between two different
withholding regimes; choose the one that is best for you
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LIKE-KIND EXCHANGE TRANSACTIONS
• Section 1031 like-kind exchange transactions
– Permits tax deferral—a type of nonrecognition transaction
– U.S. property is only “like-kind” to other U.S. property, and foreign property is only “like-kind” to other foreign property
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FIRPTA STRUCTURING CONCERNS
• FIRPTA generally overrules non-recognition provisions (such as contributions to corporations or partnerships) and makes them taxable, unless:– The foreign transferor receives a USRPI in exchange for the
transferred USRPI;– The USRPI received in the exchange, immediately following the
exchange, would be subject to U.S. tax upon its disposition; and– The foreign transferor complies with certain IRS filing requirements
• FIRPTA regulations include specific exceptions to the general recognition rule as well
• Beware of §§367 and 7874 when performing structuring
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FEDERAL TRANSFER TAX CONSIDERATIONS
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ESTATE AND GIFT TAX RATES
Applicable to U.S. Citizens or
Domiciliaries*:
Year
Lifetime Estate
& Gift Tax
Exemption
Amount
Annual Gift Tax
Exclusion
regardless of
donee identity
or citizenship
Annual Gifts or
Testamentary
Bequests to
U.S. Citizen
Spouse
Annual
Exclusion Gift
to Non-citizen
Spouse
2014 $5,340,000 $14,000 Unlimited $145,000
2015 $5,430,000 $14,000 Unlimited $147,000
2016 $5,450,000 $14,000 Unlimited $148,000
*A domiciliary can be described, for this purpose, generally, as someone living in the U.S. with no
present intention to ever leave
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ESTATE AND GIFT TAX RATES
NON-U.S. DOMICILED NON-CITIZENS
Applicable to U.S. Situs Property
But, what about bequests to a
non-citizen spouse?
Year
Lifetime
Gift Tax
Exemption
Annual
Gift Tax
Exemption
Annual
Exclusion
Gift to
Non-U.S.
Citizen
Spouse
Exemption
for Gifts or
Bequests
to a U.S.
Citizen
Spouse
Estate Tax
Exemption
Applicable
Gift &
Estate Tax
Rates
2015 $0 $14,000 $147,000 Unlimited $60,000 18% - 40%
2016 $0 $14,000 $148,000 Unlimited $60,000 18% - 40%
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ESTATE TAX
• Foreign persons subjected to US estate tax only on US situs assets that they directly hold
• Planning point: Make sure foreign person holds only non-U.S. situs property. Consider using separate taxable entities as blockers (e.g., trusts, or business entities)
Asset Type Situs Rule (assumes no IRS re-characterization) Authority
Real property Location of real property §2103; §20.2104-1(a)(1)
Corporate stock Where corporation organized §2104(a); §20.2104-1(a)(5) and (f)
Partnership interest
Unknown; perhaps residence ofowner, or partnership’s trade or business, place of organization…
Rev. Rul. 55-701; Blodgett v. Silberman, 277 US 1, 1928; §20.2104-1(a)(3); §20.2105-1(c) (if in bearer form); OECD Model Estate and Gift Tax Treaty
Disregarded LLC interest
Unknown; presumably equivalent to direct ownership, but may be intangible with own situs per recent authority
Analogy to grantor of revocablegrantor trust / sole proprietorship; or Pierre v. Commissioner, 133 T.C. 24 (2009)
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GIFT TAX
Gift Tax
• Foreign persons are subject to US gift tax only on gifts of US situs tangible assets*
• Planning point: For foreign persons making gifts to US persons, consider converting tangible assets to intangible assets prior to gifting.
• IRS will not rule on whether a partnership interest is tangible or intangible for gift tax purposes
• Rev. Proc. 2016-7, § 4.01(29)
• Also unclear how disregarded entity interests are treated
*Gifts from certain U.S. expatriates are taxable to recipient, even if intangible asset.
Mom
Son
IRS
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GENERATION-SKIPPING TRANSFER TAX
Additional GST Tax
• Foreign persons are subject to an additional, GST tax on Generation-skipping transfer of U.S. situs assets by gift or inheritance.
• Annual Exclusions can apply, but No Exemption!
Mom
Son
Grandson
IRS
GST & GIFT
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INBOUND GIFT OR INHERITANCE
ASSET TRANSFER ISSUES
• Intangible Assets– Stocks, LLC & LP interests, patents, copyrights, etc.
– General rule—intangibles are located where the giver is located.*
• Tangible Assets– Real estate, equipment, automobiles, jewelry, artwork, etc.
– General Rule—tangible assets have situs where they are physically located.
• But, what about cash, currency, bank accounts, etc.?
*But watch out for corporate stock in estate tax context!
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TYING IT ALL TOGETHER:STRUCTURING FOREIGN INVESTMENT IN U.S.
REAL ESTATE (FEDERAL TAX ONLY)
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STRUCTURING FOREIGN INVESTMENT IN U.S. REAL ESTATE
Ownership Through Foreign Corp.Foreign Person
Foreign Corp.
U.S. Tax System Exposure for Foreign Corp. YES
Capital Gains Rate (20%) on Disposition of Real Property
NO
Withholding Tax on Repatriation of Funds from Foreign Corp.
NO
U.S. Tax-Free Disposition of Entity YES
Branch Profits Tax YES
Exposure to U.S. Estate Tax NO
Exposure to U.S. Gift Tax NO
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STRUCTURING FOREIGN INVESTMENT IN U.S. REAL ESTATE
Ownership Through U.S. Corp. (USRPHC)Foreign Person
U.S. Corp.
U.S. Tax System Exposure for U.S. Corp and Foreign Person
YES
Capital Gains Rate (20%) on Disposition of Real Property
NO
Withholding Tax on Repatriation of Funds from U.S. Corp.
YES
U.S. Tax Free Disposition of Entity NO
Branch Profits Tax NO
Exposure to U.S. Estate Tax YES
Exposure to U.S. Gift Tax NO
Remember, cleansing exception can apply to allow
tax free sale (including liquidation) of USRPHC
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STRUCTURING FOREIGN INVESTMENT IN U.S. REAL ESTATE
Foreign Person
Foreign Corp.
U.S. Corp.
Ownership Through Foreign Corp. and U.S. Corp. (a USRPHC)
U.S. Tax System Exposure for Foreign Person NO
Capital Gains Rate (20%) on Disposition of Real Property
NO
Withholding Tax on Repatriation of Funds from U.S. corporation
YES
U.S. Tax Free Disposition of Foreign Corp. YES
Branch Profits Tax NO
Exposure to U.S. Estate Tax NO
Exposure to U.S. Gift Tax NO
Cleansing exception applies, as in prior slide
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STRUCTURING FOREIGN INVESTMENT IN U.S. REAL ESTATE
Foreign Person
Direct Ownership
U.S. Tax System Exposure for Foreign Person YES
Capital Gains Rate (20%) on Disposition of Real Property
YES
Withholding Tax on Repatriation of Funds NO
U.S. Tax Free Disposition of Asset NO
Branch Profits Tax NO
Exposure to U.S. Estate Tax YES
Exposure to U.S. Gift Tax YES
*May be minimized by high amount of deductions
(from depreciation, etc.) flowing through
*
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STRUCTURING FOREIGN INVESTMENT IN U.S. REAL ESTATE
Ownership Through U.S. LLC or Foreign LLC (Disregarded Entity)
Foreign Person
U.S. or Foreign LLC
U.S. Tax System Exposure for Foreign Person YES
Capital Gains Rate (20%) on Disposition of Real Property
YES
Withholding Tax on Repatriation of Funds NO
U.S. Tax Free Disposition of Entity NO
Branch Profits Tax NO
Exposure to U.S. Estate Tax ?
Exposure to U.S. Gift Tax ?
*May be minimized by high amount of deductions
(from depreciation, etc.) flowing through
*
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STRUCTURING FOREIGN INVESTMENT IN U.S. REAL ESTATE
Ownership Through U.S. LLC or Foreign LLC (Tax Partnership)
Foreign Person
U.S. Tax System Exposure for Foreign Person YES
Capital Gains Rate (20%) on Disposition of Real Property
YES
Withholding Tax on Repatriation of Funds NO
Tax Free Disposition of Entity / Asset NO
Branch Profits Tax NO
Exposure to U.S. Estate Tax ?
Exposure to U.S. Gift Tax ?
Foreign Person #2
U.S. or Foreign Tax Partnership
Use of U.S. partnership will result in §1446
withholding instead of §1445 withholding
*
*May be minimized by high amount of deductions
(from depreciation, etc.) flowing through
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STRUCTURING FOREIGN INVESTMENT IN U.S. REAL ESTATE
Ownership Through Two Tiers of Tax Partnerships
Foreign Person
U.S. Tax System Exposure for Foreign Person YES
Capital Gains Rate (20%) on Disposition of Real Property
YES
Withholding Tax on Repatriation of Funds NO
Tax Free Disposition of Entity / Asset NO
Branch Profits Tax NO
Exposure to U.S. Estate Tax ?
Exposure to U.S. Gift Tax ?
U.S. Tax Partnership
Foreign Person #2
Foreign Tax Partnership
Top tier foreign partnership means better
arguments for favorable transfer taxation than prior
*
*May be minimized by high amount of deductions
(from depreciation, etc.) flowing through
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ADVANCED STRUCTURING: EARNINGS STRIPPING
• Funding the operating entity with debt could reduce U.S. tax and create the opportunity to repatriate earnings to the foreign investors with minimal or no U.S. withholding tax
• Must be wary of:
• §163(j) (potential disallowance of interest deductions for low EBITDA corporations with 60% or more capitalization from debt)
• §385 proposed regulations (potential reclassification of debt as equity where, e.g., documentation improperly kept)
• Can plan into portfolio interest exception (0% withholding)
• Recipient cannot be “10% shareholder” of debtor. To avoid, design stock to exploit the fact that “10% shareholder” of a corporation defined as someone attributed 10% or more of the vote
• This trick does not work for partnerships, as their 10% shareholder definition is more stringent (as it looks to capital or profits interests)
• Remember, earnings stripping requires regular enough cash flow to pay debt (via, e.g., rent)
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STRUCTURING FOREIGN INVESTMENT IN U.S. REAL ESTATE
Earnings Stripping Technique Using Portfolio Interest Exception (PIE)
Foreign Person
Foreign Person #2
Foreign Tax Partnership
Foreign Tax Haven Corp.
U.S. Corp.
Trusted Unrelated
Foreign PersonRepayment
of Loan
• Capitalization of U.S. Corp. stays over §163(j)
thresholds
• Trusted Unrelated Foreign Person holds 91% of
vote, 1% of value, avoiding PIE 10% shareholder
restriction for Foreign Tax Haven Corp.
• U.S. Corp. takes low percent priority return in U.S.
tax partnership (in order to get income for stripping)
U.S. Tax Partnership
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CALIFORNIA STATE AND LOCAL TAX
CONSIDERATIONS
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CALIFORNIA NON-INCOME TAXES• The county in which real property is located will charge a
document transfer tax, due upon change of ownership• May trigger on restructuring
• Property tax reassessment triggers on most changes of ownership• May trigger on restructuring
• No California state inheritance or estate tax
• Sales and use tax generally not relevant
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CALIFORNIA WITHHOLDING• Like FIRPTA, California’s FIRPTA, Rev. & Tax. Code § 18662,
requires buyers of California real property to withhold and remit tax. • Unless exception applies, tax must always be withheld
• Amount is 3 1/3% of gross, generally. Alternatively, the state will allow sellers to demand from buyers income tax withholding based on realized gain and maximum applicable tax rate.
• Many more exceptions for California’s FIRPTA than Federal
• California incorporates §1446 in Cal. Rev. & Tax. Code §18666, except that §18666 applies to all California-source income distributed by a partnership to out-of-California partners.
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INCOME CHARACTER AND RATES• California income tax does not distinguish between capital
gains, qualified dividends, and ordinary income, which reduces the benefits of structuring for capital gains• Still, due to U.S. federal tax, there remains a 15-20% difference
between capital and ordinary income tax rates
• Further, California income tax rate is better for corporations (maximum of 8.84% for C-corporations versus a maximum of 13.3% for individuals). This exacerbates the slightly better federal corporate tax rates (maximum 35%) compared with individuals (maximum 39.6%)• Not clear this superior first layer of tax is worth double taxation
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SOURCE OF INCOME• Planners should look to convert California-source income to
non-California source. This is often achieved via inserting intangibles (e.g., mortgages, certain kinds of equity from entities) into the structure• Rents and gains from California-located real property, California-located
business income, are California-sourced
• Intangible income, for California income tax purposes, is typically sourced to location of owner, but may acquire a business situs in California and become automatically taxable in California
• It does not matter whether a corporation or partnership carries on business in California in determining where equity interests in the entities are sitused (although it does matter for sourcing partnership allocations)
• In some cases, C-corporations (and certain other entities) may need to consider California’s “unitary business” apportionment and allocation rules, as well as “water’s edge” rules
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TAKEAWAYS
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TAKEAWAYS
• Best tax structure:– Best for certainty to avoid transfer tax: Invest through a foreign
corporation
• This is very poor from an income tax perspective
– Best income tax: Use flow-through entities
• A top-tier foreign partnership may give good transfer tax results too
– Earnings stripping and intangibles can create further tax efficiencies
– Consider your preferred withholding between §§1445 and 1446
• Be careful when structuring due to pitfalls under:– California property and deed transfer taxes
– FIRPTA anti-non-recognition, §367, and §7874
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