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Tax Implications of Buying Foreign Real Estate

Many countries allow foreign investors to buy property on their soil. This can be attractive to house flippers, as well as buy-and-hold investors, particularly those who buy vacation rentals or, with the help of companies like Ruebush Group, hotel rooms.

Diversification isn’t just limited to asset class any more. With the world smaller than ever thanks to affordable airfare and digital entrepreneurship, diversity of geography matters as well. 

Choosing the right country to invest in at the right time is as important as picking the right sector. Investment vehicles like condo hotel rooms open up the opportunity for foreign real estate investment to more demographics than ever.

But it’s not that simple. Nothing stops aspiring foreign real estate investors in their tracks like concern over the tax implications.

Buying property in a foreign country means interfacing with foreign tax law.

Investors wonder if unexpected taxes means that their approach to the mathematics of profit forecasting are all wrong. Will they even end up owing taxes in two countries? Will they lose access to tax advantages of real estate investing they are used to enjoying?

The bottom line is that every country is different. You should seek expert tax advice in the target country as well as your home country when considering buying property abroad. Consider doing so as early in the process as possible. There may be workarounds to help you thrive in even the most draconian taxation systems.

Here are a few things to be aware of when looking at different countries and regions to invest in. NOTE: Laws can and do change every year, so seek professional advice on the current best tax strategy in the relevant country. 

USA

United States

American Investors

American investors do not have to report foreign real estate income, but if they do not, they cannot deduct losses on their taxes.

Americans are required to report income from the sale of a foreign property on a Schedule D. If they open a foreign bank account to help with their investment, they may be required to file Form FinCEN 114, Report of Foreign Bank and Financial Account (FBAR).

American Investments

Foreign investors who buy American investment property are liable to pay American taxes on the investment income in accordance with the Federal International Real Property Taxation Act (FIRPTA). 

This usually requires the filing of a US tax return or accepting 30% withholding of rental income. Citizens of countries with income tax treaties in effect with the US may be able to get reduced withholding. With proper structuring of the business, the burden of FIRPTA can sometimes be avoided or reduced.

FIRPTA also requires 15% withholding of sale profits. Certain US states may have separate obligations.

Effective rental income taxes in the US are 30%; capital gains taxes 15%.

European Flags

Europe

European Investors

Most European countries do not levy domestic taxes on foreign earnings, but most European countries also have tax treaties with other European nations. 

European Investments

European taxes on rental income and capital gains varies by country. Switzerland has by far the highest effective tax on rental income, at over 48%. Other European countries, including Luxembourg, Cyprus, and Sweden have effective rental income tax rates of 0%.

Finland, France, and Ireland have the highest effective tax rate on capital gains at over 33%, while countries like Romania, Poland, Germany, Croatia, and Italy have effective capital gains taxes of 0%. 

Singapore

Asia

Asian Investments

Many Asian countries prohibit foreigners from owning property. The exceptions are:

  • Taiwan
  • Singapore
  • Japan
  • South Korea
  • Malaysia

Effective rental income tax rates range from 22.4% in Malaysia to 0% in South Korea. Effective capital gains taxes range from 42% in South Korea 0% in Singapore.

Dubai

Middle East

Middle Eastern Investments

The historically-closed Gulf Cooperation Council (GCC) nations have all opened to foreign real estate investment as of the last ten years, albeit with restrictions that make it less profitable than for domestic investors. These nations include Saudi Arabia, Qatar, Bahrain, Kuwait, Oman, and the United Arab Emirates.

Effective rental income tax rates range from 7.5% in Qatar to 0% in Bahrain and Saudi Arabia. Qatar has a 10% effective capital gains tax rate; the others have 0%. 

Panama City

Latin America

Latin Investments

Effective tax rates on rental income in Latin America range from 35% in Chile to just over 2% in Panama. Capital gains taxes range from 30% in Peru to 0% in Costa Rica, Chile, and Ecuador.

Tbilisi

Georgia

The current Georgian real estate registry model is one of the most modern, effective, and successful around the world. 

You can register real estate with just your passport in a single business day. In fact, the process takes about 15 minutes total, and will cost you a flat fee of around 60$ (depending on GEL to USD exchange rate). 

The Georgian tax system is one of the simplest ones globally, with only 6 types of tax in total. Among them, the real estate tax amounts to a maximum of 1% yearly, while rental income is taxed at 5%. 

Ruebush Hospitality Group properties average about 12-15% yearly return on investment. We are happy to provide our clients with appropriate legal and tax advice during their purchase. 

To request information about our projects and how you can secure a guaranteed return on investment, click here: 

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