Real property located in the United States is an attractive and important asset class for overseas investors of all types, including high-net-worth individuals and families -- many of whom acquire residential properties (frequently through holding entities) for appreciation, rental income and/or personal use. There are, however, many structural and regulatory considerations that need to be addressed in order to ensure a successful investment.
Among the regulatory requirements are one-time and periodic reports that, under specified conditions, must be filed with the Bureau of Economic Analysis (BEA) of the U.S. Commerce Department. The BEA collects statistical data on direct investments in the United States by overseas investors, to determine the economic impact of those investments and to prepare the country’s national accounts. Although these reports are focused on U.S. businesses, they are required in connection with certain transactions involving residential real estate -- the topic of this piece.
Reports to the BEA are filed on several different prescribed forms, which are due at varying times and under a range of specific conditions.
Upon the establishment, expansion or acquisition of a new U.S. "business enterprise" by an overseas investor, or an expansion of an existing business enterprise with foreign capital, the enterprise must file a Form BE-13 with the BEA within 45 days after the triggering transaction, absent an exemption (see below). If the conditions for filing are satisfied, the relevant report must be submitted regardless of whether the BEA has contacted the enterprise to call for the filing.
Different transactions require different versions of Form BE-13 to be filed:
Quarterly Survey (Form BE–605). If an enterprise is requested to do so by the BEA, it must file a quarterly report within 30 days after the close of the applicable reporting period (45 days in the case of the fiscal year's closing period), setting forth specified business and financial information for the period. The requested report is required if the enterprise was established, acquired, liquidated or disposed of, or became inactive, during the period, and had assets, sales, revenues or income in excess of $60 million for the year.
Annual Survey (Form BE–15). If an enterprise is requested to do so by the BEA, it must file an annual report or an exemption claim. The Form-BE15 comes in several versions, each with its own conditions for applicability.
Benchmark Survey (Form BE–12). This survey is conducted every five years (in lieu of that year’s annual survey using Form BE-15): as of this writing, the most recent benchmark survey covered the fiscal year ending in 2022. The Form BE-15 comes in several versions, each with its own conditions for applicability. If the requirements for filing are satisfied, the relevant report must be submitted regardless of whether the BEA has contacted the enterprise seeking the filing.
Exemptions. As noted above, certain BEA reports have filing thresholds that may not be met by an enterprise at a given time. Although an enterprise failing to reach an applicable threshold is excused from filing the corresponding form, it must affirmatively submit an exemption claim to the agency.
Penalties. Failure to file a required form by a non-exempt enterprise may result in a civil penalty of between $2,500 and $32,500 (before inflation adjustments), an injunction commanding compliance, or both. If the failure is willful, the noncompliant person -- and any officer, director, employee, or agent of a nonexempt corporation who knowingly participates in such noncompliance -- may be fined up to $10,000 and, if an individual, may be imprisoned for up to a year, or both.
Confidentiality. BEA filings are strictly confidential and may be used only for analytical or statistical purposes. Without the filer's prior written permission, the information contained in a BEA report cannot be presented in a manner that allows the filer to be identified, and no report may be used for purposes of taxation, investigation, or regulation. The public may request access to BEA data, but the agency may (and routinely does) deny a request if doing otherwise would prejudice commercial interests or the confidentiality rights of filers. Copies retained in the filer's records are protected from disclosure by way of legal process.
Personal Use Property. An entity owned by an overseas investor and holding residential real estate used exclusively as a personal residence of the overseas investor need not implicate the BEA filing requirements (although submission of a claim form is required to secure the exemption).
Rental Property. An entity owned by an overseas investor and holding residential real estate that generates sufficient rental income, or meets an investment threshold (generally $3 million), is subject to the BEA filing requirements for so long as those conditions are satisfied.
Property Held for Appreciation. An entity owned by an overseas investor and holding residential real estate of sufficient size (generally $3 million), must file the applicable BEA reports, even if no rental income is generated by the property. However, the personal use exemption mentioned above will override this requirement.
The U.S. Commerce Department reporting requirements may apply to real estate investments from abroad in potentially unexpected ways, and that those requirements may differ at various points during the life cycle of such an investment. With appropriate local advice and a robust system for tracking potentially relevant changes, overseas investors should be able to avoid unpleasant surprises in this area.
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