BREAKING! New Rules for Foreign Investors of US Real Estate

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A brand new law goes into effect on July 1, 2014. It’s called Foreign Account Tax Compliance Act (FATCA for short). This affects Americans who have accounts in foreign countries and it affects foreign nationals who invest in the US. I’ve had several blog entries over the past month regarding the reporting for Americans. Today, I want to talk about the brand new instructions just handed down by the IRS for foreign nationals.

The new form is Form W-8BEN-E. Foreign national individuals must use Form W-8BEN. The Form W-BEN-E is for entities. For example, one of the common structures for foreign nationals to use is the LLC (limited liability company) if they are investing in real estate. If you’re Canadian, don’t follow this advice because in your case the LLC can cost you double tax. You’re better off with a C Corporation or an Limited Partnership (LP) if you’re a Canadian investing in the US.

But, let’s say you are a foreign national who is investing in real estate and you’re not from Canada. In that case, you most likely have an LLC. If there is just one owner (member), file a Form W-8BEN. Without this filing, you’re going to be subject to a 30% mandatory withholding. If you have more than one owner in the LLC, you are considered a partnership. That’s a business entity and that means you need to use W-8BEN-E. You also need to use this form if you have a C Corporation or a LP.

These are important forms for foreign nationals to file. Without the filing, you can have 30% of the gross revenue withheld. If you have questions about your own situation, give us a call at 888-592-4769. We have answers.

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