On February 11, 2015, the Senate Finance Committee unanimously approved a bill easing the FIRPTA rules for foreign investors in publicly-traded U.S. real estate investment trusts (REITs). The step is a positive one toward possible enactment this year but the legislation has a long way to go before it becomes law.
The legislation, which does not yet have a number, would expand the FIRPTA exemption available to small foreign portfolio investors. Under the current law, foreign investors owning 5 percent or less of a publicly-traded REIT are not subject to FIRPTA taxation upon a sale of the REIT’s stock or the receipt of a capital gain dividend from the REIT. The bill would double the 5 percent threshold to 10 percent. The expansion would also apply to REITs owned by certain widely-held, publicly-traded investment vehicles that qualify under U.S. income tax treaties.
These reforms would allow foreign investors to significantly increase their investments in publicly-traded U.S. REITs without being subject to FIRPTA, and are believed by proponents of the bill to have the potential to bring in billions of dollars of outside capital to the U.S. commercial real estate market.
The bill next heads to the Senator floor where it faces an uncertain future. The House of Representatives would have to also act on the bill should the full Senate pass it. While there is support for the proposal among senators on both sides of the political aisle and in the House, there is no assurance that the bill will move anytime soon.