Trump’s tax changes will help Saudi investors in US property

John C. Dworkin

By John C. Dworkin*

WITH the health-care bill now history, President Trump has pushed forward his proposals for a US tax overhaul with a proposed reduction of the top US corporate income tax rate from its current 35% to 20%.

The new 20% rate as proposed on September 27th would favorably affect Saudi investors in US real estate since the majority of those investors hold their US real property through corporations, even though the investors themselves may not always be corporate entities. Rental income and capital gain received by holding corporations are currently subject to a top US federal corporate tax rate of 35%.

Any decrease in US corporate tax rates is expected to be of great interest to prospective foreign investors and holders of US real estate at all levels of the spectrum, including individuals, family offices, real estate investment funds managed from the Kingdom and governmental institutions. Thus, what appears to be a purely US tax issue may in fact substantially and favorably impact Gulf-region finance and investment trends towards the US market.

Notably, any reduction in the US corporate tax rate will affect Saudi families and family offices holding investment property in the US, as well as Saudi advisory firms sponsoring investments in US real estate and sovereign wealth funds and other governmental institutions holding US real estate.

By contrast, US investors themselves do not hold their US real estate through regular corporations, and hence US persons currently pay a lower tax rate on their real estate holdings. Gulf-region investors are in a unique category as their investments in US real property are often made through corporations, which for several technical tax reasons is not expected to change.

There is an additional positive impact from these changes. Any increase in Gulf-region finance and investment trends towards the US market may increase the need for local expertise to manage these investments. In the digital age, investors in US real estate are increasingly able to source new real estate investments and manage their US investments from the Kingdom with less reliance on US asset managers. It would be expected that US tax overhaul will be closely studied by the growing real estate financial departments in the Kingdom.

* The writer is an expert on a wide range of tax and corporate law matters, with particular emphasis on structuring foreign institutional, individual and family investment in US Real Estate (FIRPTA) as well as Foreign Investment in US-based real estate funds, private equity, joint ventures and direct US portfolio investments