Before making investments, investors from other countries need to be aware of the limitations they face and consult with experts. It is recommended that you discuss the matter with your certified public accountant. These factors differ from nation to nation and have the potential to have a significant impact on the net profits that foreign investors earn from their investments. Below is a general guide for international investors below on how to participate in real estate private equity ventures that are based in the United States.
Step #1 – Incorporate US-Based LLC / Corporation
To get things rolling, international investors have to establish an entity that they will invest with. LLCs and corporations are both suitable organizational structures for use by overseas investors. The first option, a limited liability company (LLC), is recommended since it prevents double taxation and provides the highest level of tax efficiency.
For the purposes of taxes, a limited liability company with a single owner is regarded as a disregarded entity and is taxed as a personal business. As a result, the vast majority of the benefits associated with an LLC are forfeited, and as a consequence, having at least two partners is strongly recommended. All of the potential tax benefits are available if there is a minimum of two partners involved.
It makes no difference how the equity is distributed. A limited liability company, for instance, might have a split of 50/50, 1/99, 40/60, or some other proportion. From our observations, we've found that the vast majority of international investors establish these limited liability companies together with their wives or partners.
If the thought of that makes your mind spin, have no fear. We have experts available that are able to effortlessly cover this for you at fees that are extremely reasonable. In addition, these are one-time expenses only.
Step #2 – Apply for EIN (Employer Identification Number) and Register the LLC with Various Required Agencies
After the limited liability company (LLC) has been created, the foreign investors are required to submit an application for an EIN (Employer Identification Number) and register the LLC with a number of different agencies. The CPAs and lawyers that we recommend have a lot of experience in this field, and they will be able to assist you in setting this up in less than a day even if it may sound intimidating.
Step #3 – Execute an Operating Agreement Amongst Partners
The next step is to sit down with the other members of the LLC and write up an operating agreement that everyone must sign.
Step #4 – Apply for ITIN (Individual Taxpayer Identification Number) or Social Security Number
If they have worked in the United States and lived there for any length of time, it is not unusual to discover foreign investors who already have a social security number. On the other hand, if you don't already have one, you'll need to submit an application for a taxpayer identity number specific to individuals (ITIN).
It is necessary for each individual member of an LLC to submit an application for an ITIN. This could take up to a month to complete. According to our past experiences, the majority of international investors are able to obtain an ITIN within four to six weeks.
Step #5 – Open US-based Bank Accounts
Opening a bank account in the United States is possible for a foreign investor once they have obtained their EIN, operating agreement, and ITIN. We can assist you in opening the appropriate bank accounts with global banks that have great customer service and online access thanks to the broad banking ties that we have developed over the years.
Step #6 – Filing the LLC US Tax Returns (Federal, State and City) and Personal Tax Returns for all Partners
Both the Limited Liability Company itself and each of its partners are required to submit individual tax returns. It is common for the tax return for a syndicate partner, known as the Schedule K-1, to have considerable tax deductions that result in paper losses each year, even though you continue to make cash flow until a sale takes place, say in five years.
As a result, it is possible to minimize one's overall tax liability by offsetting past losses against future gains.
When determining the tax and transparency obligations associated with their investment, foreign investors should confer with their local specialists. Legal specialists residing in the United States may offer the most sound counsel concerning asset protection measures and US legal systems.
Conclusion
In conclusion, commercial real estate has shown that it can withstand adverse conditions and has consistently been one of the asset classes that has performed the best. Before making investments, investors from other countries need to be aware of the limitations they face and consult with experts. Our preferred advisors have a wealth of experience and are able to contribute to making the whole process more streamlined and effective.
WE'RE HONORED TO BE IN BUSINESS WITH YOU
Building wealth doesn’t always require you to do all the work you normally would as an independent real estate owner/investor. You can also accomplish the same goal by taking advantage of a syndicated real estate project.
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