US real property now more attractive for certain foreign investors

On 18 December President Obama enacted the Protecting Americans from Tax Hikes (PATH) Act of 2015, extending several temporary tax relief provisions either permanently or for two or five years.

PATH also amends the Foreign Investment in Real Property Tax Act (FIRPTA) to make US real property significantly more attractive for certain foreign investors. FIRPTA imposes US federal income tax on foreign investors’ income and disposals of US real property, including interests in corporations that hold more than a threshold amount of US real property.

The amendments allow foreign investors to purchase up to 10 per cent of a US publicly traded real estate investment trust (REIT) without being subject to FIRPTA taxation. This is twice the previous threshold. They also abolish an additional tax imposed by FIRPTA on qualifying foreign pension funds that invest in US real estate.

The exemption for Regulated Investment Company (RIC) dividends paid to non-resident alien individuals and foreign corporations, and the treatment of RICs as qualified investment entities under FIRPTA, are also being permanently extended.

  • Reliefs permanently extended by PATH include the Subpart F active financing exception. There is also a five-year extension of the controlled foreign corporation look-through rule for taxable years beginning before 2020.

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