Experts in Cross-Border Transactions and Inbound Investments in the U.S.
Multi-jurisdictional families use our expertise in complex cross-border structuring and planning involving U.S. investments.
Areas of Expertise
- Minimizing tax costs by optimizing use of the foreign tax credit, available tax treaties and leverage (subject to thin capitalization rules)
- Maximizing tax deferral opportunities by navigating complex controlled foreign corporation (“CFC”) rules (subpart F) and passive foreign investment company (“PFIC”) rules, among others
- Selecting the proper U.S. entity and structure to minimize or eliminate U.S. taxation on inbound ventures, including branch profits tax
- Consulting clients on application of FATCA rules and CRS compliance
- Structuring transactions to minimize the adverse effects of FIRPTA rules that apply to foreign investments in the U.S. real estate
Inbound U.S. Investments in Real Estate
Dilendorf Law Firm represents individuals, families and private funds across a wide range of U.S. real estate transactions including purchases, sales and leasing, construction, development, financing and joint ventures.
Foreign investments in the U.S. real estate present additional complications in terms of taxation and structuring. For instance, if a foreign investment in New York real estate is improperly structured, a combined Federal, New York State and New York City tax rate on gains realized from selling the property could be as high as 65%.
On the other hand, proper advance planning and advice may substantially reduce and, in certain cases, completely eliminate U.S. taxation associated with ownership and sale of real estate in the U.S.
For our foreign clients, we provide the following real estate services:
- Formation and implementation of tax-efficient investment structures
- Resolving issues arising at disposition of U.S. property interests (FIRPTA)
- Handling fund formation and joint ventures involving foreign parties
- Incorporating U.S. real estate into clients’ existing holding structures/estate plans
The appropriate real estate holding structure depends heavily on the client’s goals, future plans, country of residence and the underlying reasons for investing in the U.S. real estate.
Inbound U.S. Planning Beyond Real Estate
Dilendorf Law Firm provides counsel to international clients regarding their investments in the U.S. ventures and property, as well as their tax treatment under U.S. laws and treaties.
We advise clients with respect to:
- Developing the most effective business and legal structures for businesses and ensuring compliance with U.S. laws and regulations
- Structuring of business operations to reduce or defer U.S. federal taxes, including by navigating CFC and PFIC rules
- Protection for the principals of international companies from liability
- Helping clients understand the differences between the U.S. tax system and the tax systems of other jurisdictions, including the effect of tax treaties
- Selecting the proper U.S. entity and structure to minimize or eliminate U.S. taxation, including branch profits tax
Any cross-border transaction or investment must also account for the client’s overall holding structure and estate plan. Clients’ portfolios of assets and investments are rarely limited to one country. Many of our clients have family members who live both within and outside the United States, with investments and businesses on both sides of the border. As such, proper planning should extend to all aspects of their life – personal and business.
Leveraging your Inbound Investments
Generally, a foreign person can benefit from leveraging their investments in the U.S. If the transaction is properly structured, the debt can also produce an interest income to the client that would be free from U.S. income taxes or withholdings.
Any leveraged ownership structures require extensive planning and involve several complex tax provisions dealing with thin capitalization rules, portfolio interest exemption and income stripping rules.
The structuring of a leveraged investment will depend on a lot of factors – the residency of the investor, available tax treaty benefits, type of investment and the level of investor’s engagement in the project, investor’s existing holding and operating structure, and many others.
Bilateral Tax Treaty Benefits
The U.S. maintains bilateral tax treaties with 68 countries.
Under these treaties, residents of foreign countries are taxed at a reduced rate, or are exempt from U.S. taxes on certain items of income they receive from sources within the U.S. The impact of tax treaties can be quite significant for the client’s bottom line, substantially reducing U.S. income and withholding taxes.
With proper structuring, the tax savings could be very significant allowing effective tax rate reductions of up to 70-80%, making a client’s U.S. inbound investment much more attractive.