Find Out The Best Way To Hold Real Estate Overseas

The Best Way To Hold Your Overseas Property

colorful houses in portugal

How should one hold property overseas? That’s a regular question at conferences… especially my Global Property Summit each year. The best option depends on the person, the property, and the country where the property is located… and even what funds you’re using for the investment.

Use IRA funds and, generally speaking, you should set up an LLC to hold the property. In fact, for some countries, you’ll have to use an LLC because an American IRA isn’t an entity that other countries recognize. They just don’t know what to do to title a property owned by “XYZ IRA Custodian, Inc. FBO John Smith, Account #12345.”

If John Smith is the buyer, why isn’t the title going into his name? Ironically, one concern is probably money laundering worries, which are a current focus of the U.S. government. The person who pays for the property should hold title to the property.

Outside of an IRA, the question for how to hold title can get much more complicated. Estate planning, tax filings and taxes, probate (part of estate planning, but a separate issue to consider), and asset protection all need to be considered.

No One-Size-Fits-All Solution

One lesson I learned early on as I tried to streamline how my overseas properties were held was that one size doesn’t fit all. You have to consider each property separately as you buy it based on what makes the most sense for that property and that country.

For example, Croatia allows foreigners to hold property in their own names if their country allows Croatians to own property in that country. In addition, hold property in Croatia in your own name for three years or more and you pay no capital gains taxes. Hold the property in a Croatian corporation, which would be required if your home country doesn’t allow Croatians to own property, and you’ll pay capital gains taxes when you sell.

For Americans, the complication of proving your home country allows Croatians to own property was something I couldn’t overcome. The individual state laws govern real estate in the States, so I had to get proof from the last state I lived in that Croatians could own property there. The proof had to be positive proof not lack of a restriction on Croatians. In other words, it wasn’t going to happen.

Fortunately, by that time I was also an Irish citizen, so I used my Irish nationality to get the title processed in Croatia.

This particular purchase fell well outside of my standard holding structure, which is a Nevis LLC. First, the options in Croatia at the time were either your own name or a Croatian corporation. Foreign entities weren’t an option. Second, the tax benefits for holding in my own name outweighed the probate considerations for the kids should I die before selling the property.

Be Careful Who You Do Business With

Europe in general is more complicated than the Americas when trying to use a structure for holding real estate. France has a special corporation you can use for holding real estate, which can be managed outside of France’s inheritance rules if you’re not French or living in France. Portugal has a blacklist of countries. If you use an entity from one country on the blacklist, you’ll pay more in property and other taxes in Portugal. That’s how I ended up with an intermediary company to hold my Portuguese apartment.

Using an offshore LLC to hold property in most countries in the Americas is straightforward. Sometimes you have to register the foreign entity and get it a local tax ID number, but you can hold property with a foreign entity. Don’t let your local attorney tell you otherwise.

A reader wrote in after she’d already completed the purchase of a property in Costa Rica and the Dominican Republic. She’d set up a holding company in Nevis after reading my recommended standard holding structure. She thought she was set, and she was… until her local attorneys in Costa Rica and the DR told her she needed a local company from the country where the property was located.

Both attorneys told her the same thing in the same timeframe (she was buying both properties at the same time) so she figured it must be true and she paid each of them to set up a local company that was owned by her Nevis LLC. The property titles were put in the names of the local companies.

Unfortunately, the attorneys she used were either liars or morons. I vote for liars.

You can hold property directly in the name of a foreign entity in both Costa Rica and the DR, so why would her attorneys tell her otherwise?

To sell her a local corporation.

Attorneys make money when they set up entities… and they earn an annual fee acting as the registered agent.

Use a foreign entity and they only make money on their work for the real estate transaction.

Just retitle the property you say? The costs of retitling can be high thanks to transfer taxes. You can’t just do a quit claim deed like you can in the States and title the property in another name.

So what’s my recommended baseline holding structure and why?

It’s an offshore LLC in Nevis that you use to hold as many of your offshore properties as you can based on the local situations where the properties are located.

Using a single offshore LLC keeps your costs low—one entity with one annual fee. More entities mean more fees, so only use intermediary entities when necessary, like I did in Portugal—but not like the woman did in Costa Rica and the DR where they weren’t necessary.

Make Sure To Consider Your Estate

Using an offshore LLC rather than a local company takes local probate and inheritance questions out of the country where the property is located and places it under the jurisdiction where the LLC was formed. Own properties in several countries in your own name or in local entities, and your heirs will have to go through probate in each country, costing time and money.

Of course, if you are only buying one second home in a foreign country, you may just opt to hold the property in your own name and leave your heirs to deal with the local probate. You have to weigh the ongoing costs of an entity against the future cost of probate and how much you care if your intended heirs actually end up with that property. Many countries have inheritance laws that dictate how assets are distributed to heirs.

The key is to keep things as simple as you can while still achieving your offshore goals. That will help you do determine how to hold title to your properties overseas.

Lief Simon