Follow the PATH (Act): REITs and Their Foreign Investors Have a Spring in Their Step
08 January 2016Corporate Alert
Generally, foreign investors are exempt from U.S. tax on the capital gain they recognize on the sale of stock or debt instruments issued by U.S. corporations (if the gain is not effectively connected with the conduct of a U.S. trade or business). Foreign investment in U.S. real property is treated differently. Since 1980, the Foreign Investment in Real Property Tax Act (FIRPTA) has required foreign investors to file a U.S. tax return and pay U.S. tax on gain from the disposition of U.S. real property interests (USRPIs), which include interests in real property and interests in corporations that own substantial U.S. real property. Distributions (whether liquidating or nonliquidating) by real estate investment trusts (REITs) to foreign investors of net capital gain are also subject to FIRPTA tax if attributable to the disposition by the REIT of any of its USRPIs. Only limited exceptions to FIRPTA tax apply.