Question: What unique tax applies to foreign corporations that does not apply to any other Taxpayers?
ANSWER:
There is a unique tax on Foreign Corporations that do not distribute cash reserves from earnings and profits earned in the U.S. The corporation must either reinvest the cash in U.S. assets, or distribute the cash as dividends or suffer a tax known as "Branch Tax". This can be an additional 30% tax on profits in addition to the foreign corporate income tax.
Question: How can a Foreign Investor avoid the United States estate taxes on his or her U.S. real estate investment if the Foreign Investor dies owning U.S. real estate?
ANSWER:
Foreign Corporation. The major advantage of the Foreign Corporation as an investment vehicle is the fact that there will be no U.S. estate if the Foreign Investor were to pass away (estate tax); owning a Foreign Corporation that owns U.S. real estate, nor will there be any gift tax (on the transfer of the shares) of the Foreign Corporation if a foreign investor makes a gift of such shares.
Questions: May a Foreign Investor invest in a corporation and avoid paying corporate and individual tax on the gain from the sale of U.S. real estate?ANSWER:
Yes, once a corporation, Foreign or U.S., has sold all of its U.S. real estate holding and paid the single tax at the operating level of the corporation, the corporation may liquidate and distribute its assets to its foreign shareholders free of tax
Further, a Foreign Investor who wants to use just a U.S. Corporation to own the U.S. real estate investment will receive the same benefit from liquidating that corporation. The "Second Tax" that usually occurs when cash is distributed from a corporation's profits can be eliminated.
All of this is accomplished by a single exception in the internal revenue code that governs corporations that invest in United States real estate. Once a corporation that invests in U.S. real estate, (whether it’s a foreign corporation or a domestic corporation), pays all of its U.S. taxes on all the real estate that it owns in the United States, it can liquidate and it can distribute all of the cash that it has from the sale of those assets free of tax to the investor.
