Would you like to invest in residential or commercial real property abroad and receive a passive income by letting it on a lease? There are plenty of opportunities to consider. You can register the property in your personal name or you can create a real estate holding company. The latter option is preferable for several reasons and below we discuss what types of business structures you can use to buy and hold real estate in a foreign country. Holding real estate in an LLC would probably be the best idea in many cases.
The types of real estate businesses are quite diverse, however, and each of them has its own strong and weak sides. Some will be plain to establish while others will let you pay less in taxes. Some will provide better protection of your assets while others will let you easily withdraw from investments if you want to do so. Let’s see what options are available to those who are interested in buying and holding real estate abroad. Please note that every real estate investment business plan will have its own specifics and every case has to be handled on an individual basis.
Please apply for our experts’ assistance if you would like to register a business company in a foreign country that will hold your real property there.
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on which jurisdiction is best for your business, preferred tax regime, company structure.
Personal ownership of real estate abroad
This is the simplest type of investment in foreign real estate that you can make. Just bring your passport, pay the money and there you go! You can now use your foreign property in any way you like: you can stay there on your visits to the country, rent it out, and sell it without asking anyone’s permission.
If you opt for personal ownership of foreign property, however, you have to bear a couple of important factors in mind. First, your house or apartment will not be immune to possible creditors’ claims. If you make personal debts, your personal property will have to be sold to pay them back. Another factor to consider is who is going to inherit your foreign property after your death. It would be a good idea to make a will that clearly indicates who the heir is (or who the heirs are).
In many countries, the local legislation also allows joint ownership of property by married couples. Moreover, some national sates will automatically qualify real estate purchased by a married person as joint property of both spouses. If you want to sell your house or apartment, you will have to have your spouse’s consent. If one of the spouses has to pay back a debt, the property can be taken away from the family even without consent from the other spouse. Thus, personal or joint ownership of foreign property is easy to acquire but it has some evident downsides.
Corporate ownership of real estate abroad
The main reason why you should have real estate registered in the name of a legal entity is to protect it from creditors. If your foreign property belongs to a company, it cannot be used to compensate for your personal debts. (This does not apply to sole proprietorships though.) With some forms of company ownership, you may also be able to save on taxes while with some other forms you might have to pay a bit more than the amount that you’d have to pay if the property was in your personal possession. Let’s see what advantages and disadvantages each type of property holding company brings.
Partnerships
A partnership is a business organization that has two or more members or partners. In a General Partnership, all partners have unlimited liabilities while in a Limited Partnership there can be only one General Partner with unlimited liability. Limited Partners, as their name suggests, will have limited liabilities.
The main advantage of a Partnership is that it is subject to pass-through taxation. Thus, in terms of taxes this could be a good option. On the other hand, it’s not so good in terms of asset protection. If you are a general partner in a Partnership, you are answerable for all your obligations by your recoverable property. If you are a limited partner, you only have limited rights to the property. Besides, if one of your partners does something stupid, you might suffer certain losses through no fault of your own. Shortly speaking, we do not recommend making a Partnership the owner of your foreign property.
C-Corporations
C-Corps exist independently from their owners: they are separate legal entities. This form of company ownership is quite popular among real estate investors. The number of C-Corp owners is not limited, the company can issue stocks and pay dividends to the shareholders. The main advantage of this form of company ownership is efficient asset protection. The C-Corp owners can use the real estate belonging to the corporation at their discretion and feel perfectly safe: if they become liable to a personal debt, the property will remain secure, as it does not technically belong to them but to the corporation instead.
The most important disadvantage of a C-corporation is the fact that its owners (shareholders) are taxed twice. First, they are taxed at the corporate level and then their incomes are taxed at the personal level. There are ways of legally reducing the overall amount of taxes that a C-Corp owner has to pay and if you establish a property-holding corporation, the taxes are going to be negligible when the time for the second round of payments comes. So, this form of company ownership could be a good choice even though registering a C-corporation in a foreign country is going to take some time and effort.
S-Corporations
An S-Corp has some features of a Partnership and some features of a C-Corp. Similarly to Partnerships, S-Corps are subject to pass-through taxation. Their profits are not taxed but they are passed on to the owners who pay their personal income taxes. However, S-Corp owners have limited liabilities, which makes this form of company ownership similar to C-Corporations. Thus, by registering your foreign property in the name of an S-Corp you can efficiently protect your assets while saving on taxes. This form of company ownership is especially popular with short-term investors who buy real estate in order to sell it at a profit soon.
You have to realize, however, that establishing an S-Corp takes a long time and requires considerable investments on its own. Besides, various limitations apply (not everybody can be a shareholder of an S-Corporation). The number of the company owners cannot exceed 100 people, which limits the opportunities to attract more capital and grow. Finally, some in-built gains as well as a passive income that an S-Corp makes can be taxed at the corporate level. That is to say, avoiding double taxation is not always possible with an S-Corporation.
Limited Liability Companies
Probably the best option to consider is registering your real estate in a foreign country in the name of a Limited Liability Company (LLC). This form of company ownership combines the advantages that some other forms boast and lack most main disadvantages that they possess. It is the most flexible company structure and it allows managing your foreign property in an efficient manner.
LLCs can be formed by private individuals or legal entities and the number of company owners is not limited. The company formation process is not so simple but much fewer documents need to be submitted to the Company Registrar when creating an LLC than in comparison to the number of documents required for establishing a corporation, for example. The company founders draw up an Operating Agreement and that is all that is needed in many cases. Property belonging to an LLC is well protected from creditors and the taxes that LLCs pay are modest in a number of jurisdictions. LLCs cannot go public so you wouldn’t be able to use it as an instrument for attracting capital but if your goal is to hold the property that you have in a foreign country, this type of company structure could be your best choice.
Please write to info@offshore-pro.info if you would like to learn more about the opportunities to register a foreign company and make it the owner of your real estate. We will be happy to offer many different business solutions to you if you are looking to diversify your assets.
