Buying Business Property in a Foreign Country: A Comprehensive Guide

Buying commercial property abroad can be an exciting way to expand your operations and extend reach for your US business.

However, when buying business property abroad, it’s not uncommon to run into a few challenges along the way. You’ll have to navigate the red tape of the country in question, and the usual complications with property investment.

In this blog post you’ll learn exactly how to prepare to buy business property abroad, and the unique challenges it presents.

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What to Consider Before Buying Business Property in a Foreign Country

Overseas property investment often requires a measured approach and a lot of patience. While in many cases it can be a lot like buying business property in the U.S., there are additional complications to navigate.

For example, each country has its own laws around property ownership and strict criteria for foreign investment. More often than not, this means you’ll need to work with a lawyer familiar with the target country’s laws and language to help guide you through the process.

In other cases, you might find the country you’re looking to buy property in welcomes foreign investment with open arms and makes the process seamless.

Investment visas are a great way to invest in commercial property overseas as they can speed up the process and offer incentives. Portugal’s Golden Visa paved the way for these types of visas in 2012, offering residency for you and your family if you own commercial property in the country.

Differences in Buying Commercial vs Residential Property

While it’s easy to lump property investment overseas into one category, the reality is that the processes for buying commercial and residential property will be different in every country.

For example, if you’re looking to buy property of any kind in the UK as a US citizen, you’ll have to pay Stamp Duty Land Tax (SDLT). For commercial property, the rates are more favorable than with residential property and you won’t have to pay a surcharge as you would with the latter.

You may also have to consider the inclusion of VAT tax in your commercial property transactions in the UK. Unlike residential properties, commercial properties where you conduct business may be subject to VAT, though you can navigate this by registering for VAT.

The best option for overseas business property investment is to consult with a local property specialist. Working with someone with a professional understanding of local property investment laws can help you feel confident throughout the process, and save you the expense of searching for property only to find you’re not eligible to buy it.

Table of contents
Steps to Purchase Foreign Business Property Tax and Legal Implications of Foreign Property Ownership Pros and Cons of Buying Business Property in a Foreign Country Save Money When Buying Business Property Abroad With Wise Business

Steps to Purchase Foreign Business Property

To avoid wasting time and money, it pays to follow a thorough process for overseas business property investment.

Plan Ahead

Just as you would to buy business property in the U.S., the first step is to carefully plan your approach.

Specifically, consider the current market conditions for the target country, the local business environment, and always do due diligence on properties you’re interested in.

Before making any decisions, make sure you understand what you’re getting yourself into, and what it means to invest in and own commercial property in the target country.

Understand Legal Considerations

As you’ll likely already be aware from the process of buying commercial property in your own country, understanding the legal ramifications of owning property overseas is very important.

Some legal hoops you might need to jump through include:

• **Foreign ownership laws **- Find out if it’s possible to own commercial property outright in your target country, or if there are certain limitations eg leaseholds or caps on foreign ownership
• Property ownership structures - Understand what the requirements are for owning business property. Some countries might need you to set up a local business entity to invest in a property, for example.
• Title search and verification - While it might seem unlikely, it’s worth searching the property title to make sure there are no disputes or encumbrances.
• Local licensing and permits - Some types of commercial properties may require a specific business permit or license.

It’s always best to seek local legal representation to navigate these processes and be 100% sure you won’t run into any issues down the line

Explore Financing Options

Unlike owning commercial property domestically, you may need to explore financing options to invest in property overseas.

This may require you to seek local mortgage financing from a local bank or lender, though you may be subject to higher fees and shorter term loans. In many cases, foreign investors will consider cash purchases if they have the means to do so, as it can fasttrack the buying process.

Tax and Legal Implications of Foreign Property Ownership

Disclaimer: This post is for informational and educational purposes only and should not be taken as tax advice. You should always speak with a tax specialist and accountant for clarity before purchasing commercial property abroad.

The most challenging part of investing overseas is often handling the tax and legal implications that come with foreign property ownership. While the potential financial rewards of foreign property ownership may be great, there’s a lot to consider before you get there.

Taxes to Consider

Foreign Income Tax

Foreign income tax is applicable in various scenarios, depending on how you plan to use your overseas commercial property.

For example, if you plan to rent out the building, you’ll likely have to pay local income taxes on any rental income you make.

As a U.S. citizen, you also need to consider double taxation. Wherever you set up a commercial property, you’ll be required to report all of your worldwide income to the IRS. To offset this and prevent double taxation, you can apply for a Foreign Tax Credit.

Capital Gains Tax

If you sell a foreign property, you’ll be liable for local capital gains tax, the rate of which will vary based on the country.

You’ll also have to report the sale on your U.S. tax return, but again, you can apply for a Foreign Tax Credit to limit your U.S. tax liability.

FATCA and FBAR

If you own financial assets outside the U.S. through a holding corporation that are worth more than the thresholds outlined by the IRS, you’ll have to file a FATCA report.

In addition, if you have foreign bank accounts that are connected to your property and their ¹ combined value exceeds $10,000 at any point in the year, you’re required to file an FBAR report with the U.S. Treasury.

Property Tax

In many countries you’ll be subject to annual property taxes, which scale according to the value of the property. As mentioned earlier in the UK example, this can include fees like stamp duties.

Legal Implications

It’s important to consider international business laws as well as local property ownership laws before you invest.

Some countries may have restrictions around property ownership, such as Thailand, where you’re obligated to enter a long-term lease. Other countries like Vietnam require you to own property through a domestic legal entity, which may mean you need to set up a joint venture with a local partner.

It may also be the case that there are U.S. or international sanctions in place that limit or prevent you from owning commercial property in some areas.

Pros and Cons of Buying Business Property in a Foreign Country

While there can be a huge upside to owning business property abroad, there are also some drawbacks you should factor into your decision-making process.

Pros

• Diversify your Investment Portfolio - While it may be more closely associated with residential property investment, buying commercial property abroad is another great way to diversify your investment portfolio. By operating your business in another country and perhaps continent, you can mitigate market underperformance and U.S. dollar fluctuation damages.
• Enjoy Higher Returns - If you set up in countries with emerging economies, you might be able to capitalize on a surge in consumer demand.
• Access New Markets - Investing in overseas property helps you open up new markets and expand your global footprint - giving you access to new customers, suppliers, and business opportunities.
• Gain Tax Incentives - Many countries offer tax breaks or incentives to foreign investors, and alongside U.S. tax treaties, you can improve your bottom line.

Cons

• Complex Laws - Owning property overseas comes with a certain level of legal risk, especially if you don’t go through the correct procedures with local legal representation.
• Exchange Rate Issues - Currencies can plummet in value and fluctuate from month to month, so you may have an unfavorable exchange rate at times while operating your overseas business property.
• Higher Management Fees - Even if the country itself is generally more cost-effective for running a business, you’ll likely be subject to higher transaction fees as a foreign investor.

Save Money When Buying Business Property Abroad With Wise Business

When buying commercial property overseas, the fees can quickly rack up. To avoid paying more than you need to, consider setting up a Wise Business account for seamless international money management.

Wise is not a bank, but a Money Services Business (MSB) provider and a smart alternative to banks. The Wise Business account is designed with international business in mind, and makes it easy to send, hold, and manage business funds in 40+ currencies.

If you’re sending or receiving large amounts our team of experts are ready to help with every step of your transfer.

Wise always has low, transparent fees when paying for international transfers, and you get a discount when you send over 20,000 GBP (or equivalent). Your transactions are extra-secure with our 2-factor authentication, and you can get dedicated support from our experts to have peace of mind while making a large transfer.

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Sources used :

¹ IRS

Sources last checked on 05-December- 2024.