Are you a “Foreign Person” selling a “US Property Interest”?

Beginning on 16 February 2016, the rate of withholding tax required by the Foreign Investment in Real Property Tax Act (FIRPTA) will increase from 10% to 15%. FIRPTA imposes Federal tax on the sale of an interest in real property located in the United States by a foreign seller. This 15% rate applies to the Gross Proceeds of the sale irrespective of whether or not there is a profit on sale.

To ensure that FIRPTA taxes owed are collected, buyers who are purchasing a real property interest from a foreign seller will now be required to withhold 15% of the purchase price. The increase in the withholding rate is the result of the recently enacted Protecting Americans from Tax Hikes (PATH) Act, which was signed into law in December 2015. When purchasing real property in the United States, it is imperative that a buyer finds out if the seller is a “foreign person” as defined by FIRPTA (for individuals this means ‘Non-Resident Aliens’). A buyer who fails to withhold at the new 15% rate after 16 February 2016 may be held liable for the taxes owed to the IRS.

It may be possible to obtain a Withholding Certificate to allow for a reduced amount of withholding.

Additionally if you are a “foreign person”, you must obtain a Taxpayer Identification Number (TIN) and report your sale of property to the Internal Revenue Service on a US tax return in the year of sale.

Please contact us to discuss this or any other US or international tax and compliance issues.