Five Tax Traps for Foreign Investors

Most complications can be mitigated by pre-investment tax planning, Griffin writes.

BOSTON—The Internal Revenue Code contains numerous traps for the unwary foreign investor in US real estate or businesses. The tax law provisions applicable to nonresident foreign investors are very often quite different—and more onerous—than the tax rules applicable to US citizens and foreign residents. This article identifies some of the most common areas where nonresident foreign investors may need specialized tax advice to avoid costly mistakes.

Estate Tax. An estate of a US citizen or resident is subject to an estate tax based upon the value of the worldwide property, tangible and intangible, owned by the decedent on the date of death or over which he or she has certain rights or powers. The current estate tax rate for 2015 is 40% for taxable estates in excess of a $5.34 million exemption, which is adjusted annually for inflation. A US estate may also deduct from the taxable estate a marital deduction equal to the value of property left to a surviving spouse. The amount of lifetime taxable gifts during the decedent’s life is also included in calculating the gross estate.