BY LOUIS P. ARCHAMBAULT, ESQ – As the world continues shrinking, foreign investors are coming to Florida to take advantage of exciting real estate opportunities. The old model for acquiring residential and commercial properties, using primarily purchase financing has been replaced by all all-cash or mostly cash transactions, which also is the primary method used by foreign buyers.
For a Florida practitioner, these two factors have combined to make foreign real estate buyers more the rule as a prospective client than an exception. However, foreign buyers have particular concerns and needs to consider that are separate and apart from domestic purchasers. This article will summarize some of these common but important issues to keep in mind when representing foreign investors.
EXPLAINING THE US (FLORIDA) LEGAL SYSTEM OF PROPERTY OWNERSHIP
In many other countries around the world, the method for completing a real estate transaction is very different than it is in the United States. For example, to complete a real estate transaction in France or the Quebec province of Canada (which are code- based systems), the transaction will be controlled by a notary, who completes the deal and provides an official stamp of approval for the transaction. Title Insurance is not a typical part of the process.
In contrast, an attorney in the U.S. (Florida) is both the attorney for the transaction and an officer of the court who prepares the proper transfer documents, oversees their execution and records them. To ensure the transaction is completed, a title insurance policy is issued as a one-time charge, insures the transaction against unforeseen title defects. Explaining the United States conveyance process and the role of title insurance in the transaction is a necessary component of your work with a foreign buyer, who may not be accustomed to the American process.
CHOOSING AN ENTITY FOR PURCHASE
Once a property is identified, unless it is being bought by an individual, foreign investors must decide on an entity for the purchase. Besides individual ownership, foreign investors have a number of options for real estate purchases if they use a U.S.-based entity. Foreign investors typically choose a corporation, partnership (general or limited), limited liability company, trust or land trust.
However, care should be taken in selecting the entity. As examples for pitfalls in entity selection, “S” corporate status is only available to U.S. citizens and legal permanent residents. Canada views a U.S. limited liability company as a corporation, with double taxation.
All Florida counsel should be prepared to discuss basic immigration issues with their foreign clients, since an important issue for them is their ability to visit South Florida and their properties. With short-term visas such as normal business or tourist visa requests, a maximum stay is six months.
But, if a foreign investor qualifies for certain business visas (i.e. E-1, E-2) the stay can be increased to three to five years, or longer with renewals. If an E-B5 investment visa is obtained, an investor can achieve legal permanent resident status. Through E-visas, not only can a foreign investor and their families take advantage of the real estate opportunities presented by the Florida system, they can also obtain extended U.S. visitation rights.
GENERAL TAX TREATMENT OF FOREIGN INVESTORS
As a general overview of foreign investor tax issues, foreign nationals are required to file U.S. tax returns for their US business activities. Lawful permanent residents must file US tax returns for all activities, but will receive a reduction for taxes paid in other countries.
Transactions with foreign investors likely will involve an international transfer of funds. For transfers to the United States, it is important the sender have both domestic and international wire instructions to verify transfers are effectuated properly. If instructions are incorrect or incomplete, funds may be delayed or returned. Instructions should also specify the type of currency being sent. If dollars are being transferred from a foreign branch of a U.S. bank, domestic wire instructions may be sufficient.
However, if foreign currency is being transferred, it must first be exchanged to dollars and then transferred to the U.S.. Note that the Patriot Act must be followed for new foreign investor bank accounts to verify funds are not transferred from an entity or individual owned or controlled by a party listed by the Office of Foreign Assets Control (OFAC). Additionally, customer laws have become stricter, so anticipate delays in opening bank accounts.
In today’s global economy, foreign buyers or clients have become a growing segment of your potential client base. If you can service these needs, you have an opportunity to thrive, even as your competition does not.
Attorney Louis P. Archambault is a partner with the Miami-based law firm of Pathman Lewis, LLP. Archambault is board certified in real estate. He practices in the areas of real estate, real estate development, business and corporate law. He has an AV Preeminent rating, the highest rating awarded to attorneys by Martindale-Hubbell. Archambault can be reached at firstname.lastname@example.org.