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The political and economic stability, an inventory of investment-grade
properties on the market, an environment that does not discriminate against
foreign investment, attractive risk-return ratio, and tax incentives are the
main factors that attract foreign investors. |
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Generally, the central (federal) government's involvement in land law is very limited, mainly in the
sensitive resources, industries, federal and state owned real properties, and
land comprising territories. Federal laws in bankruptcy, environmental,
securities, and income tax also have impact to real property transactions. The
Foreign Investment in Real Property Tax Act (FIRPTA) provides rules for the
taxation of nonresident alien individuals and foreign corporations on sales or
other dispositions of U.S. real property interests (including installment sales, exchanges, foreclosures,
and deeds in lieu of foreclosure of a real property interest). FIRPTA applies to what
it defines as a U.S. real property interest, which includes not only interests
in land, but interests in buildings, mines, wells, crops and timber as well. |
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Since 1985, a disposition of a real property interest by a
foreign corporation or nonresident alien individual generally is subject to a
withholding tax regime under section 1445 of the Code. Under the withholding tax
regime, any purchaser of a real property interest from
a foreign seller must withhold ten percent (10%) of the gross purchase price and
remit such amount to the IRS within 20 days of the closing. The purchase price
includes cash plus the fair market value of any other property transferred to
acquire the real estate. A purchaser failing to withhold is liable for any
uncollected withholding tax, as well as penalties and interest charges. |
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In essence,American land ownership law is state law. Each state has its own statute and/or
regulation that govern foreign real estate or land ownership. State laws are
divided into certain roughly identifiable categories in terms of governing
foreign ownership. Approximately eighteen states have legislation or adopted
constitutional amendments to remove common law disabilities on alien ownership
of land. For example, the statutes in expressly allow nonresident aliens to hold, take and
enjoy real property on the same terms as resident aliens, and also allow
nonresident corporations to do so on the same terms as domestic corporations. In
another seven or eight states, there is no expressed restriction on foreign
ownership and therefore by implication none exists. |
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Some states may have limitations on
alien ownership in terms of acreage or size. In Wisconsin, the limit is set to 640
acres for a nonresident alien unless it is acquired by devise or inheritance or
as a collection of a debt. Others may have restrictions on the length of
ownership, e.g., a maximum of five years' ownership in Nebraska is allowed. For more
information, please refer to "Foreign Investment in U.S. Real Estate, A
Comprehensive Guide," Section of Real Property, Probate and Trust Law, American
Bar Association, Timothy E. Powers, or contact legal counsel. |
Click To Download Foreign Ownership PDF
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