Foreign Investments in U.S. REITs: Tax Challenges for Investors and Funds Seeking Foreign Capital

Navigating FIRPTA and Its Exceptions, Section 892 and REIT Investment Structures to Obtain Favorable Tax Outcomes for Investors

Recording of a 90-minute premium CLE/CPE webinar with Q&A

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Conducted on Thursday, May 14, 2015

Recorded event now available

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Course Materials

This CLE course will provide real estate attorneys and tax counsel with a review of tax considerations for foreign investors in U.S. REITs. The speaker will address tax challenges for foreign investors as well as the funds seeking investments from overseas and will include a discussion of FIRPTA, the FIRPTA exceptions for domestically controlled and publicly traded REITs, Section 892 for sovereign wealth funds and foreign governments, and various REIT structures to optimize tax structures for investors.

Description

According to the Association of Foreign Investors in Real Estate, the U.S. is currently the leading country for real estate investments with 81% of the respondents looking to increase investments in 2015. REITs are a very popular and generally tax-efficient vehicle for foreign investments, particularly for foreign institutional investors, pension plans and sovereign wealth funds.

When REITs dispose of U.S. real property the gain is generally taxable to the foreign investor under FIRPTA. In addition, tax withholding obligations can be triggered. FIRPTA tax can be avoided, however, if the fund or investor can take advantage of FIRPTA exceptions including those for domestically controlled and publicly traded REITs.

REITs seeking to attract foreign investors must exercise due diligence in how their fund is organized and how the foreign investment is structured to achieve the most favorable tax outcomes for its investors.

Listen to our authoritative speaker discuss tax challenges for foreign investors in U.S. REITs, including an in-depth analysis of FIRPTA, the FIRPTA exceptions for domestically controlled and publicly traded REITs, Section 892 for sovereign wealth funds and “foreign governments” and various REIT structures to maximize favorable tax outcomes for investors.

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Outline

  1. Tax advantages of REITs as vehicles for foreign investments vs. partnerships and C corps

  2. Tax treatment of distribution by REITs
    1. Ordinary income: REIT dividends
    2. Capital gains: FIRPTA
  3. FIRPTA exceptions
    1. Domestically controlled REITs
    2. Publicly traded REITs
    3. IRS Notice 2007-55
    4. Section 892 for sovereign wealth funds and foreign governments
  4. REIT investment structures
    1. REITs as blockers
    2. Parent and subsidiary REITs
    3. Leveraged blocker structures
  5. REIT due diligence
  6. Proposed REIT and FIRPTA legislation

Benefits

The panelist will cover these and other key issues:

  • What tax advantages do REITs have compared with partnerships and C corps?
  • What is the tax treatment of distribution from REITs and what are the requirements to meet FIRPTA exceptions to optimize tax outcomes for foreign investors?
  • What are some of the more common REIT investment structures that can be utilized to achieve favorable tax outcomes for foreign investors?

Faculty

Robert J. Le Duc
Robert J. Le Duc
Co-Chair, National REIT Tax Practice
DLA Piper

Mr. Le Duc has extensive experience in the real estate and mortgage-related areas, including representation of real...  |  Read More

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