Tax planning for Chinese investment in U.S. real estate

2015-10-25
US

According to recent estimates, Chinese investors spent $1.9 billion in U.S. real estate acquisitions in Q2 2015, representing the largest group of foreign investors in U.S. real estate. The main obstacle facing Chinese persons who invest in U.S. real estate is the Foreign Investment in U.S. Real Property Tax Act (FIRPTA), more specifically Section 897, from a U.S. federal income tax perspective. Here, we illustrate U.S. tax consequences of direct investments, two-tier structure or pass-through structure, Norway-Barbados structure, and investing as Chinese government entities. There are some unique opportunities available for Chinese investors because of the existence of the U.S-China income tax treaty, as well as the exemption from the Chinese CFC rules for entities formed in jurisdictions that are included on the Chinese “white list.” Chinese investors who take advantage of these opportunities through careful planning and structuring will pay substantially lower effective tax rates worldwide. This article was published on The National Law Review (by J. Rubinger and S.A. LePree) and can be read here.

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