Before you even begin to consider a jump into the foreign real estate investment pool, it’s important to become as knowledgeable about the entire process as possible. One item that is particularly important to research and understand is the tax implications that go along with property investing overseas. To that end, we’ve put together this tax guide to help U.S. real estate investors gather some much needed tax information.

1. Tax Guide to
Overseas Real Estate
Investments
for U.S. Investors
- from Durise.com -

2. Introduction
The rise of real estate crowdfunding platforms, such as Durise, has expanded the potential
property investment pool for investors to areas around the world. For U.S.-based real
estate investors, the benefits of investing in property overseas are many. From predictable
investment returns to standard tax breaks and more, it’s easy to understand the popularity
boom.
Before you even begin to consider a jump into the foreign real estate investment pool, it’s
important to become as knowledgeable about the entire process as possible. One item
that is particularly important to research and understand is the tax implications that go
along with property investing overseas. To that end, we’ve put together this tax guide to
help U.S. real estate investors gather some much needed tax information.

3. NOTEOne caveat before we get started - we are neither tax attornies nor tax specialists, so please use this
guide within the spirit which it was created - as a helpful resource and guide to help you gain some
beginner-level knowledge. Then, once you’re equipped with that knowledge, consult your own attorney
and/or accountant for legitimate legal and tax advice.

4. Your U.S. Tax Implications

5. U.S. Tax Implications
Investing in real estate via crowdfunding
carries with it some tax issues that are
unique from more traditional real estate
investing. The first thing to understand is
that real estate crowdfunding is a form of
real estate syndication. As an equity
investor in a syndication, you are actually
a partner in partnership, and investments
in syndications will generally be
considered “passive” activities.
“For a real estate entity there are typically
two sources of passive activities: (1) rental
activities (rentals of apartments, commercial
buildings, retail centers, etc.), unless the
taxpayer is classified as a real estate
professional; or (2) a business (flips, real
estate development, etc.) in which the
taxpayer does not materially participate.
Passive activities will generate either passive
income or passive loss. Interest, dividends,
annuities and gains on stocks and bonds are
not considered passive activities.” [source1]

6. U.S. Tax Implications cont.
At the end of each year, investors receive
a K1 from the syndication. This form will
either report income or a loss, as well as
other tax items. This information is then
included on that year’s tax return following
the rules for passive activities. If there is a
loss reported on the K1, then the investor
reports a passive loss.
There is one additional special tax
advantage offered through Crowdfunding
syndications.
That advantage is favorable long-term
capital gains rates. Property acquired
through a syndication is usually held for
longer than one year. Then, when that
property is sold, it will typically result in
long-term capital gains which are taxed at
a rate of 15% in most cases. Any
depreciation deducted from the property
would be subject to tax rates not to
exceed 25%.

7. Your Overseas Tax
Implications

8. Overseas Tax Implications
“For U.S.-based investors, the ownership
of foreign property has special tax
implications. These are often determined
by the laws of the country in which the
property lies and the citizenship status of
the investor in question. In general,
investors who have United States
citizenship or permanent-resident status
must pay American taxes on any income
earned from foreign property holdings.
This is true for ongoing rental income as
well as for the capital gains realized from
the sale of such property.” [source2]
Taxes are frequently levied on income
and capital gains earned within a
country’s borders by that country’s foreign
governments. To help mitigate this
“double taxation” problem, the U.S.
maintains treaties with several other
countries, most of which primarily
stipulate that American citizens can’t be
required to pay the same taxes twice. In
countries that do not have a treaty in
place with the U.S., double taxation may
still occur, depending on the individual
laws of each foreign jurisdiction.

9. The Foreign Tax Credit
There is an offering within the U.S. Tax Code
that allows those that invest in foreign properties
to use some (and sometimes all) of the foreign
taxes paid to offset liability on your U.S. taxes.
According to Investopedia, “for any ‘qualified
foreign taxes’ that you’ve paid - and this
includes taxes on income, dividends and interest
- you can claim either a credit or a deduction (if
you itemize) on your tax return.” It is important to
realize that there are limits to the amount of
foreign tax credit you can receive, so it’s always
a good idea to discuss any potential investment
opportunity with your tax specialist prior to
investing.
“The amount of foreign tax you can claim as a
credit is based on how much you’d be taxed on
the same proceeds under U.S. tax law,
multiplied by a percentage. To figure that out,
you’ll have to complete Form 1116 from the
Internal Revenue Service (download the form
here). If the tax you paid to the foreign
government is higher than your U.S. tax liability,
then the maximum foreign tax credit you can
claim will be the U.S. tax due, which is the
lesser amount. If the tax you paid to the foreign
government is lower than your tax liability in the
U.S., you can claim the entire amount as your
Foreign Tax Credit.” [source3]

10. Foreign Tax Credit cont.
To learn more about the Foreign Tax Credit, visit the IRS
website at IRS.gov. There, you’ll be able to find more
information on the requirements for claiming foreign tax
credits.
https://www.irs.gov/individuals/international-taxpayers/foreign-tax-credit-compliance-tips

11. Passive Foreign Investment Companies
One important distinction to be
mindful of is investing via a Passive
Foreign Investment Company (PFIC).
These are foreign-based mutual
funds or partnerships that have at
least one U.S. shareholder. U.S. tax
laws treat these types of investment
entities much differently than funds
based offshore, and these laws can
be very complex.
To illustrate this point, Investopedia
shares the following example:
“current distributions from a PFIC are
generally treated as ordinary income,
which is taxed at a higher rate than
long-term capital gains.

12. Tax Information for Dubai
Real Estate Investments

13. Tax Info + Dubai Real Estate Investments
Now we will examine some important
distinctions that U.S. based investors should
keep in mind when considering property
investments within the United Arab Emirates. A
focus on Dubai is particularly useful for real
estate crowdfunding investments through our
platform Durise. “Each emirate [within the UAE
has] its own rules regarding foreign investment,
and foreign ownership restrictions frequently
apply.
For example, Gulf Cooperation Council
nationals may invest in Dubai property without
restriction, but not in Abu Dhabi. As a general
rule, foreign nationals can only invest in specific
areas, wherein freehold land ownership may or
may not be permitted for overseas investors.”
[source4]
The UAE does not impose income or
corporation taxes, so the only taxes a US-based
property investor would be liable for are those
levied via U.S. tax codes, as discussed above.
However, property taxes are one item to keep in
mind, although they are not relevant to all
property investment scenarios.

14. Tax Info + Dubai Real Estate Investments cont.
“Property taxes are levied by municipalities. These are the main taxes, if not the
only taxes, that you are going to pay in the UAE. The local property tax is
generally paid only by landlords who rent out their property. Thus, it is in effect a
tax on rental income. In all emirates but Abu Dhabi, the rate is 5% for residential
property and 10% for commercial property. In Abu Dhabi, municipal landlord
licence fees must be paid by landlords instead. Higher property taxes
mechanically shrink property values and rental yields. Prior to purchasing
property, it is essential that you check how much property taxes you can expect
to pay.” [source5]

15. Glossary of Terms

16. Definition
Real Estate Syndication
An effective way for investors to
pool their financial and intellectual
resources to invest in properties
and projects much bigger than they
could afford or manage on their
own.

17. Definition
K1
(aka K-1)
A tax document used to report the
incomes, losses, and dividends of a
partnership. The Schedule K-1
document is prepared for each
individual partner and is included
with the partner's personal tax
return

18. Definition
Capital Gains
The profits that an investor realizes
when he or she sells the capital
asset for a price that is higher than
the purchase price

19. Definition
Double Taxation
A situation where a country levies
tax on an income that has already
been taxed in the same or another
country. For example, corporate
profits are taxed when they are
earned, and then taxed again as
personal income when distributed
to stockholders (shareholders) as
dividend or (in case of an owner-
manager) as salary.

20. Definition
Qualified Foreign Taxes
Generally, the following four tests
must be met for any foreign tax to
qualify for the credit:
1) The tax must be imposed on you,
2) You must have paid or accrued
the tax,
3) The tax must be the legal and
actual foreign tax liability,
4) The tax must be an income tax
(or a tax in lieu of an income tax).

21. Definition
Form 1116
A form that one files with the IRS in
order to claim the foreign tax credit,
which is a direct, dollar-for-dollar
reduction in one's U.S. tax liability
due to taxes levied by a foreign
government. Form 1116 is used
whether the filer is an individual, a
trust, or an estate.

22. Definition
Passive Foreign Investment
Company
A foreign-based corporation that has one of
the following attributes: 1) At least 75% of the
corporation's income is considered "passive",
which is based on investments rather than
standard operating business, or 2) At least
50% of the company's assets are investments
that produce interest, dividends and/or capital
gains.
PFICs include foreign-based mutual funds,
partnerships and other pooled investment
vehicles that have at least one U.S.
shareholder. Most investors in PFICs must
pay income tax on all distributions and
appreciated share values, regardless of
whether capital gains tax rates would normally
apply.

23. Sources
1) Alphaflow | The Tax Implications of Real Estate Crowdfunding
2) The Law Dictionary | What are the Tax Implications of Foreign Property Ownership?
3) Investopedia | Understanding Taxation of Foreign Investments
4) ExpatBriefing | Property Investment for Expats in the United Arab Emirates

24. Dubai real estate for the crowd, owned by the crowd
DURISE is a crowdfunding platform that gives accredited investors from all over the world the chance
to invest in a range of vetted real estate opportunities in Dubai, on their own terms, and for as low as
$1,000. At DURISE, we take on the burden of your transaction, providing tax guidance and management,
as well as monitoring tools, so there are no surprises.