Every week, Mansion Global poses a tax question to real estate tax attorneys. Here is this week’s question.
Q: I’ve read that some countries require buyers to actually take up residence and have a tax domicile in order to purchase a home there. How exactly is this done, and what are some countries that require this?
"As you might suspect, the laws in every country differ on this issue and as a result, so do the solutions," said Hope P. Krebs, partner and co-chair of the International Practice Group at the Duane Morris law firm in Philadelphia.
Many countries—like France and Mexico— have a so-called "domicile" requirement—meaning you have to live in the country to buy a home there, said John Olivieri, partner of the global Private Clients Group at White & Case LLP in New York.
But there are workarounds.
"In France, for example, a foreigner can buy a home by creating a French entity known as an ‘SCI’ to make the purchase," Mr. Olivieri said. "Having the SCI as the owner satisfies the French that the owner is ‘French,’" he said, adding that an SCI (Société Civile Immobilière) must have more than one shareholder.
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A similar solution can be executed in Mexico.
"In Mexico, foreigners create a trust with a Mexican bank as the trustee. That way the bank is title holder and the owner is therefore ‘Mexican,’" Mr. Olivieri said.
"In the U.S., we allow anyone to own real estate, but we tax foreigners on their gains from the sales of real property," Mr. Olivieri said, noting that the U.S. does not tax foreigners on any other capital gains.
For those interested in buying real estate in a foreign country, Ms. Krebs offered this advice: "Seek out qualified counsel in the foreign jurisdiction to advise you on the restrictions and acceptable solutions."
As for a U.S. citizen or someone filing taxes in the United States who is purchasing real estate, that person "should always speak with their U.S. tax adviser before implementing any [proposed] solution so there are no surprises in terms of U.S. tax reporting or consequences," Ms. Krebs said.
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