The Alphabet Soup of Working with Foreign Real Estate Investors

Given the continuous fluctuation in business immigration, tariffs, and international relations, it shouldn’t be a surprise that foreign investment into the U.S. (especially by China), has slowed. And yet, it is still happening. The Oregon real estate market will continue to be attractive to foreign investors due to our region’s overall stability. From individual immigrant-owned businesses to notable marquee international operations such as Adidas, Vestas, and Shimadzu, foreign investment creates jobs and powers numerous commercial and residential real estate transactions in Oregon every year.

For this entry in our Real Estate Review Miniseries, we’ll take a look at the alphabet soup of laws and government agencies which regulate real estate transactions involving foreign investors. Review our Chambers Regional Real Estate Guide for more detail on how these fit into the legal landscape of Oregon real estate.

Office of Foreign Asset Control (OFAC)
OFAC is a department of the U.S. Treasury that enforces economic and trade sanctions against countries and groups of individuals involved in terrorism, narcotics trafficking, and other criminal activities. During a purchase or sale, it’s up to the parties involved to agree upon the scope of representations and warranties since Oregon does not mandate these for commercial transactions. However, it’s typical for a seller and buyer to give representations as to the authority to enter into the transaction, that the agreement is binding on the parties, and that the parties are in compliance with OFAC.

Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA)
There are federal limitations on investment on U.S. real property by foreign investors under FIRRMA, which expanded the scope of real estate transactions subject to federal review. Now, the federal government will review any transaction involving real estate which is part of a port, is near a military installation or other sensitive government facility, or which could reasonably provide foreign persons the ability to collect intelligence on national security activities. In January, we shared a post that reviews how FIRRMA expands the role of the federal Committee on Foreign Investment in the United States (CFIUS) in real estate transactions.

Federal Investment in Real Property Tax Act (FIRPTA)
A real estate transaction that involves a foreign investor will be subject to FIRPTA and its Oregon-based counterpart. FIRPTA is a tax law that imposes U.S. income tax withholding requirements on foreign persons selling U.S. real estate. Foreign sellers will also be subject to Oregon state tax withholding from the proceeds of any sale.

FIRPTA requires withholding of 15% of the total amount realized on the sale of United States real property interests by foreign investors. For transfers that will exceed $100,000, Oregon’s counterpart tax requires withholding the lesser of 4% of the consideration, 8% of the gain, or the seller’s net sale proceeds. This applies if the seller is a natural person who is not an Oregon resident, or a C corporation that is not qualified to do business in Oregon. For disregarded entities, the status of the ultimate owner is determinative.

Agricultural Foreign Investment Disclosure Act
This law illustrates that there are other reporting requirements that can affect foreign investment in US real estate. The law requires foreign entities to report their transactions involving US agricultural lands to the US Department of Agriculture’s Farm Service Agency. When a foreign investor buys, sells, or leases U.S. real estate, the investor should check to determine if any applicable jurisdictions impose any reporting or disclosure requirements.

As this short overview illustrates, real estate deals that involve international parties are subject to additional requirements and disclosures and closer scrutiny from both state and federal regulators. Considering that our local economy has always benefited from the attention of the global marketplace, it’s worth the effort. If you’re considering entering a real estate transaction that carries any hint of foreign money, bring in an advisor who has experience with navigating international investors so that your deal doesn’t end up lost in translation.

This article is Part 4 of our Oregon Real Estate Review Miniseries