Portfolio Interest Exemption Investments

Qualified non-US Investors May Earn 6% to 12% Annually in the US Free of Tax Withholding

The Portfolio Interest Exemption program (PIE) allows Non-US investors to invest directly into ALPRC and other investment opportunities related to real estate in the US with zero tax withholding from the profits that the investment earns. Investments must be whole loans; fractionalized interest in a loan secured by real estate; corporate notes/senior debt (debentures); and/or, lines of credit secured by first liens and deeds of trust.

 

Qualified investors wishing to invest through this program will earn 6% – 12% annual returns paid either monthly or quarterly. Some investment opportunities pay even higher returns or they also have an equity participation income in addition to the fixed interest income. These profits are not subject to withholding tax from the US provided that the Non-US Investor maintains his/her status as a Non-Resident Alien. There are many benefits to investing into the US through PIE. Please contact us for more information and to determine eligibility.

 

Portfolio Interest can be broadly defined as the interest on specified debt obligations paid to certain foreign persons. Since 1984, Portfolio Interest has been tax exempt as described in IRC Sections 871(h) and 881(c) for the cases of non-resident aliens and corporations, respectively.

 

A quick summary and reference of the Portfolio Interest Exemption:

 

  • The issuer must be a U.S. person. [IRC § 871(h)(2)(B)(ii)(I)]
  • The holder must be a foreign person that:The underlying obligation must be in “registered form.” [IRC §§ 871(h)(2)(B)(i), 881(c)(2)(B)(i),as defined by IRC §§ 163(f), 871(h)(7), 881(c)(7)]
    • provided proof of its foreign status [IRC §§ 871(h)(2)(B)(ii)(I) & (II), 881(c)(2)(B)(ii)(I), (II), 871(h)(5)], and that is:
    • not a bank extending credit in the course of its ordinary trade or business (except if buying U.S. obligations) [IRC § 881(c)(3)(A)]
    • not related to the issuer, if the foreign person is a Controlled Foreign Corporation (CFC) [IRC § 881(c)(3)(C)]; and
    • not a “10-percent shareholder” in the issuer at the time the interest is received. [IRC §§ 871(h)(3), 881(c)(3)(B)]
  • The underlying obligation must be in “registered form.” [IRC §§ 871(h)(2)(B)(i), 881(c)(2)(B)(i), as defined by IRC §§ 163(f), 871(h)(7), 881(c)(7)]
  • The interest must not be contingent interest (with some exceptions). [IRC §§ 871(h)(4), 881(c)(4)]
  • Before the obligation is issued, the Secretary must not have determined in writing (and published a statement) that the foreign country of the creditor has inadequate information exchange with the U.S. [IRC §§ 871(h)(6), 881(c)(6)]
  • The interest must be Fixed, Determinable, Annual or Periodic income (FDAP), and cannot be income “effectively connected” to the U.S. trade or business (ECI). [IRC §§ 871(a), 881(a), 871(h), 881(c)]

 

The main goals of these provisions are to ensure that (1) U.S. persons do not benefit from the tax free interest, and (2) the underlying debt is not like equity in the hands of the holder.

ALPM Portfolio Interest Exemption (PIE) Video

Watch as A List Partners Management’s David F. Owen, CFM explains Portfolio Interest Exemption (PIE) and it’s potential benefits to investors.

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