Foreign pension funds will be able to invest in US real estate and infrastructure free of FIRPTA’s tax liability.
Reforms to the US Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) last week mean that foreign pension funds will receive the same treatment as US pension funds when investing in real estate and infrastructure.
The tax relief, however, will not apply to sovereign wealth funds or insurance companies.
Key changes to FIRPTA will make it easier for foreign investors to take meaningful stakes in US real estate without the levy of punitive taxes.
The reforms raise the threshold to 10% (from 5%) for the ownership stake a foreign investor can hold in a US publicly traded REIT.
Foreign collective investment vehicles will also benefit from tax relief when investing in US REITs.
The reforms were part of a $1.8trn (€1.6trn) tax and spending package passed in the US Congress last week, funding the government through September and achieving changes the real estate industry has long called for.
The 2,009-page bill, known as the Protecting Americans from Tax Hikes (PATH) Act of 2015, benefited from bipartisan support and was signed into law by president Barack Obama.
The bill, said Ryan McCornmick, senior vice-president and counsel of the Real Estate Roundtable, will “spur job growth, energy efficiency and greater investment in American real estate and infrastructure by breaking down outdated tax barriers that discriminate against foreign capital”.
The Roundtable had actively lobbied for FIRPTA reform.
In other changes for REITs, the bill restricts corporations from spinning off their real estate assets into tax-free REITS and then leasing the properties back.
This will affect only new transactions initiated after 7 December.
REIT conversions and taxable spin-offs will still be allowed.