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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7252
Experience:  15years with H & R Block. Divisional leader, Instructor
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what taxes pay a foreight corporation on income and capital

Resolved Question:

what taxes pay a foreight corporation on income and capital gains related to real estate. example...foreign corp. own a property inFlorida and rent the property....
Submitted: 9 months ago.
Category: Tax
Expert:  Robin D. replied 9 months ago.

Robin D. :

Hello and thanks for trusting me to help you today. I am a tax adviser with over 15 years of experience.
Rental property in the US held by a non US person or entity, would be taxed on the rental property and withholding would apply unless the nonUS person opted to be treated as doing business in the US.
The method by which rental income will be taxed depends on whether or not the foreign person who owns the property is considered "engaged in a U.S. trade or business." Ownership of real property is not considered a U.S. trade or business if it consists of merely passive activity such as a net lease in which the lessee pays rent, as well as all taxes, operating expenses, repairs, and interest in principal on existing mortgages and insurance in connection with the property. Such passive rental income is subject to a flat 30 percent withholding tax (unless reduced by an applicable income tax treaty applied to the gross income rather than the "net rent" received.

Robin D. :

The only way expenses can be deducted, is if an income tax return Form 1040NR for nonresident alien individuals and Form 1120-F for foreign corporations is timely filed by the foreign investor.

Robin D. :

Once an election to be treated as effectively connected is made by attaching a declaration to a timely filed income tax return, there is no obligation to withhold even in a net-lease situation.

Robin D. :

The form W8 ECI is completed and given to the manager of the rental in the US or the individual that is renting the property. This would show no withholding would be required.

Robin D. :

My goal is to give you excellent service. If you are satisfied, please rate me. If you have follow-up questions on this same topic, use the reply box below. To start a new conversation with me on a new topic request me again.

Customer:

The ide is have the property in the name of a BVI...and rent it.

Robin D. :

You can do that but the US taxation does not go away. Real property in the US used for rental is taxable to the US no matter who owns it.

Robin D. :

Even if you mean to have a BVI company that you are affiliated with own the property and you rent it from the BVI company.

Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7252
Experience: 15years with H & R Block. Divisional leader, Instructor
Robin D. and 2 other Tax Specialists are ready to help you
Expert:  Robin D. replied 9 months ago.
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Customer: replied 9 months ago.
Ok...assuming a bvi is the owner... What and what level lf taxes the bvi has to pay in income and capital gaings.. Property in Fl.
Expert:  Robin D. replied 9 months ago.
Rental income from real property located in the United States and the gain from its sale will always be U.S. source income subject to tax in the United States regardless of the foreign investor's personal tax status and regardless of whether the United States has an income treaty with the foreign investor's home country.
The capital gains tax would apply if they sold the property.
The tax on the rental would be a flat 30% unless they opted to be effectively connected and then the rate would be on the income after expenses and taxed at ordinary progressive rates.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7252
Experience: 15years with H & R Block. Divisional leader, Instructor
Robin D. and 2 other Tax Specialists are ready to help you

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