When there are multiple purchases, the real estate can be purchased by a U.S. LLC which is owned by the
U.S. Blocker. The benefits under this structure are that the foreign investor is not required to file U.S. income
tax returns and transfers of the stock in a U.S. Blocker are not subject to U.S. gift tax. The downside of this
approach is that dividends from a U.S. Blocker to the foreign investor are generally subject to U.S. withholding
tax.
Dual Blocker Structure
Under a dual blocker structure, the foreign investor owns a non-U.S. corporation (“Foreign Blocker”), which
in turn owns a U.S. corporation (“U.S. Blocker”) that purchases the interests in U.S. real estate. The benefits
under this structure are that the Foreign Blocker is not required to file U.S. income tax returns, transfers of
stock in the Foreign Blocker are not subject to U.S. estate or gift taxes and gains from sales of the real estate
investments by the U.S. Blocker are not subject to the FIRPTA withholding tax.
In addition to the above commonly used structures, more complex structures, such as a two-tier partnership
structure or a structure involving a U.S. or foreign trust, may offer higher U.S. tax savings. Pros and cons
under each structure should be evaluated based on specific situations of the foreign investor. n
Barry Wen is a partner in BPM’s tax practice. Contact Barry at [email protected] or 408-961-6316.
Lu Zhang is a director in BPM’s tax practice. Contact Lu at [email protected] or 408-961-6337.
BPM Real Estate Insights
15