MAIN will research, locate, and negotiate, the purchase and management of income properties. MAIN will use best efforts to meet your investment requirements, assist foreign investor(s) to meet US tax filing obligations; manage and provide property accounting and reporting, and forward all profits to the investor’s US bank account - after the payment of all US Federal and State taxes. Enclosed is a diagram of all the steps required to own real property in the US.
Kunio Kikuchi, CIPS, Director of Asian Investments, located in Tokyo Japan is pleased to assist any Foreign Investors who desires to explore the purchase of US Real Estate. Kunio can be reach by e-mail: Kunio Kikuchi firstname.lastname@example.org
All foreign investors owning U.S. rental property are responsible for paying taxes on all rental income earn in the U.S. regardless of any tax treaties that may exist. The Investor can either pay a flat tax of 30 % of your gross rental income or elect to file an annual US tax return and reduce your taxes by claiming deductions relating to ownership and management of the property. (i.e. Property Taxes, Insurance, Management Costs, etc.). With either method of taxation, each investor must have an Individual Taxpayer Identification Number (ITIN). The IRS issues ITINs to foreign nationals and others who have federal tax reporting or filing requirements and do not qualify for Social Security Numbers (SSN’s).
As soon as possible, the investor needs to obtain a U.S. 'Individual Taxpayer Identification Number' (ITIN) as owner of the property (Each person listed on the property deed). The application is done with IRS Form W-7, and the investor must provide original certified identification documents.
What documents are needed to apply for an ITIN?
Below is the list of the only acceptable documents:
The IRS has 'Certified Acceptance Agents' who are authorized to certify your original documents and process the application. The W-7 form may look easy and you may want to process it yourself but save yourself time by employing an agent. Certified Acceptance Agents are located worldwide. Contact an agent in your country of residence. It normally takes 4-6 weeks for your W-7 to be processed by the IRS.
Upon receiving your ITIN number from the IRS, you must provide MAIN with a copy of the IRS letter showing your new Individual Taxpayer Identification Number (ITIN). MAIN will not manage rental property for foreign owners who do not acquire an ITIN number and/or a corporate EIN number.
To obtain a bank account in the US for investment purposes, the Investor will be required to have an ITIN number. MAIN can assist the Investor in setting up a US bank account, through the banking services of Union Bank of Los Angeles. Union Bank that is an American full-service bank and is wholly owned by The Bank of Tokyo-Mitsubishi UFJ. The bank, formerly known as Union Bank of California, N.A., has operations in California, Washington and also has commercial branches in Dallas, Houston, New York City and Chicago, as well as two international offices. Headquartered in New York City, MUFG Union Bank, N.A. is a subsidiary of holding company MUFG Americas Holdings Corporation and a member of the Mitsubishi UFJ Financial Group(NYSE: UFG). Mitsubishi UFJ Financial Group (MUFG) is one of the world's leading financial groups. Headquartered in Tokyo and with approximately 350 years of history, MUFG's global network has about 2,300 offices in over 50 countries and regions offering services including commercial banking, trust banking, securities, credit cards, consumer finance, asset management, and leasing.
CAAs can now authenticate the passport and birth certificate for dependents. CAAs will continue to certify identification documents for the primary and secondary applicants. Form W-7 (COA), Certificate of Accuracy for IRS Individual Identification Taxpayer Number, must be attached to each Form W-7 application submitted as verification they have reviewed the original documentation or certified copies from the agency that issued them. CAAs will have to attach and send copies of all documentation reviewed with the Form W-7 COA to the IRS.
As a reminder, AAs and CAAs must conduct an in person interview with each applicant (primary, secondary and dependent) in order to complete the application. Video conferencing (i.e. SKYPE) can be used if the CAA has the original identification documents or certified copies from the agency that issued them in their possession during the interview.
|* Acceptance Agent|
|Actus Tax Corporation||7th Floor Akasaka Chuo Bldg
3-2-6 Akasaka Minato-Ku, Tokyo
|Deloitte Tohmatsu Tax Co.||Shin Tokyo Bldg. 5F
3-3-1 Marunouchi Chiyoda-Ku, Tokyo
|Ernst & Young Tax Co.||Kasumigaseki Building 32F
3-2-5 Kasumigaseki, Chiyoda-Ku, Tokyo
81 33 506-2017
d/b/a Nagasawa Tax and Consulting Office
|1-17-8 Uchikanda Chiyoda-Ku Tokyo
d/b/a Chida International Tax & Accounting
|5-1-18-1101 Miyahara Yodogawa-Ku, Osaka-SHI
|Eos Accountants LLP||Marunouchi Trust Tower- Main 20 Floor
Chiyoda Ku, Tokyo
|Ernst & Young Tax Services Ltd.||22nd Floor, Citic Tower
1 Tim Mie Avenue
Central, Hong Kong
|KPMG||8F Princes Building
Central, Hong Kong
|Philip K. Yeung
|Unit 1203 12F CEO Tower
Cheung Sha Wan, Hong Kong
|East Asia Sentinel Tax Services Limited||22/F, Tai Yau Building
181 Johnston Road
Wanchai, Hong Kong
|* Acceptance Agent|
|American Expat Tax Services Private Ltd.||545 Orchard Road
|Hayden T. Joseph CPA LLP
d/b/a Advanced American Tax
|#25-00, Samsung Hub
3 Church Street
|Tax and Accounting Hub Ltd.||9 Temasek Boulevard
Suntec Tower 2 No. 09-00
Investors are required to deposit all the necessary investment funds in the US Bank before offering to purchase property in the US. The Seller of Investment property will require the Investor(s) to verify (by bank verification) that the Investor(s) has the required amount of funds in the US Bank to purchase the Investment property.
Investor(s) will need to decide what type of entity structure to hold the Investment Property. The Entity could be either an Individual or as a California Limited Company (LLC). The Investor’s legal counsel or Certified Public Accountant (CPA) will need to assist the Investor on such selection of the best entity to hold property for the Investor.
MAIN will research the property investment market both (on-market and off market) for those properties that meet the Investment requirements (investment holding period, yield and risk requirements) within budgetary restraints of investment funds available. The Investor will then select the property(s) for purchase consideration.
MAIN will negotiate with Seller, the purchase price, terms, conditions of sale and Due Diligence Period. This will be accomplished by written non-binding Letter of Intent (LOI) which will be negotiated into a binding Purchase Agreement including non - refundable deposit(s). The Purchase Agreement will have a contingency time (usually 60 to 90 days) to allow the Investor to review (Due Diligence Period) all the property and financial information on a non -risk basis. MAIN will coordinate and assist the Buyer with the property financial analysis; and coordinate the review by Buyer’s legal counsel of all property documentation for Buyer’s decision to either: (1) to proceed with the purchase or (2) to reject the purchase at the end of the Due Diligence Period. In the event the Buyer elects not to move forward with the purchase, the escrow (defined below) will be terminated (with any escrow costs, if any, shared between Buyer and Seller), and the purchase agreement terminated. Upon Buyer’s desire to proceed with the Purchase, the earnest money escrow deposit becomes non-refundable - in the event Buyer does proceed with property sale pursuant to the terms and conditions of the Purchase Agreement. The purchase closing (transfer of the property to Buyer) will usually occur within 30 to 60 days after the end of the Due Diligence Period. The total contractual period for the purchase, through due diligence and closing, is usually between 90 to 120 days.
What is escrow? Escrow is the process whereby parties to the transfer or financing of real estate deposit documents, funds, or other things of value with a neutral bonded and disinterested third party (the escrow agent or holder), these assets are held in trust until a specific event or condition takes place (as set forth in the purchase agreement) and or according to specific, mutual written instructions from the parties. Escrow is essentially a clearinghouse for the receipt, exchange, and distribution of the items needed to transfer or finance real estate. When the event occurs, or the condition is satisfied, a distribution and transfer takes place. When all the elements necessary to consummate the real estate transaction have occurred, the escrow is “closed”. See http://www.dre.ca.gov/files/pdf/escrow_info_consumers.pdf for a full explanation for escrow.
The Escrow company will handle all the property documents and funds between the Buyer and Seller; pursuant to all the terms and conditions of the Purchase Agreement and escrow instructions, prepared by the escrow company, agreed to by and between the Buyer and Seller. All funds for purchase received from both Buyer and Seller are deposited with the escrow holder or company to be transferred to Seller and Buyer according to the escrow instructions. The Buyer’s legal counsel will review all the escrow documents including the legal recorded status of title to be conveyed to Buyer. Once all the escrow instructions are adhered to by both Seller and Buyer, the escrow will legally transfer the property to Buyer by Grant Deed, recorded in the County where the property is located.
A title company insures that the title to a piece of real estate is legitimate and then issues title insurance for that property. The title company makes sure a property title is legitimate, so that the buyer may be confident that once the buyer buys a property, the buyer is the rightful owner of the property. To ensure that the title is valid, the title company will do a title search, which is a thorough examination of property records to make sure that the person or company claiming to own the property does, in fact, legally own the property and that no one else could claim full or partial ownership of the property. Title insurance protects the lender and/or owner against lawsuits or claims against the property that result from disputes over the title. Title companies may also serve as the escrow company to ensure that funds in escrow are used only for settlement and closing costs and may conduct the formal closing on a property. At the closing, a settlement agent from the title company will prepare all the necessary documentation, explain it to the parties, collect closing costs and distribute monies. Finally, the title company will ensure that the new titles, deeds, and other documents are filed with the appropriate entities.
MAIN will enter into a Property Management Agreement with the Investors’ entity (Client) to provide all the requested services required by Client; including but not limited, to collection of all rents; deposit all revenue; payment of all expenses; provide all required property maintenance and insurance; establish all operating budgets for approval of Client; “on-line” project accounting and reporting and the coordination of filing the annual Federal and State tax returns prepared by the Client’s CPA, at Client’s sole cost. See all available services herein this Web site.
The Internal Revenue Service (IRS) requires MAIN, the property manager, to withhold 30% of the gross rents to ensure the investor will file a tax return at year end. This is obviously very costly to the investor. However, there is an alternative that will exempt the investor from the mandatory 30% withholding. After obtaining an Individual Taxpayer Identification Number (ITIN), the investor must submit to MAIN Form W-BECI. If the investor does not file a form W-8ECI with MAIN, we are REQUIRED by law to withhold 30% of the income from the rental and forward the funds to the IRS. Note: MAIN will not manage properties for owners who do not file the W-BECI form with MAIN.
By filing Form W-BECI the investor eliminates the mandatory 30% tax withholding as it notifies the property manager (and the IRS) the investor will be filing annual tax returns to fully report the income and expenses related to the rental property. Most generally, the investor will file Form 1040NR (Non-Resident Tax Return) with the IRS. Tax returns are due each year and the investor should consult with a tax professional.
At the end of each year MAIN will provide the investor with a yearend statement of income and expenses related to the management of the property. Along with the yearend statement, the investor will receive a copy of IRS Form 1042-S that reports the income to the IRS. the investor will then use this copy of Form 1042-S to file taxes through a tax professional.
Legal Disclaimer: The material provided here is for informational purposes only and is not intended and should not be considered as legal advice for investors. Please contact your attorney and/or tax professional to obtain advice with respect to any issue or problem. Applicability of the tax or legal principles discussed in this material may differ substantially in individual situations.