A Foreign Investor’s Guide to U.S. Real Estate Investment Trusts
By Anthony Diosdi In the United States, a Real Estate Investment Trust or “REIT” is a common vehicle for earning income from rental property. A REIT can be thought of as a modified passthrough entity similar to a partnership that avoids corporate level taxes by utilizing a dividend paid deduction. However, unlike partnerships, REIT distributions are treated as a dividend, which may be favorable to foreign investors. Although dividends are subject to a 30 percent withholding tax under the so-called “FDAP” rules, tax treaties generally provide for the reduction or elimination of the 30 percent withholding tax. In addition, a properly structured REIT may avoid FIRPTA withholdings. Another advantage of a REIT is from a compliance perspective. A foreign investor may invest in U.S. real estate without having to apply…