Beginning Wednesday, February 17, 2016, the withholding tax rate in Code section 1445(a) will increase to 15% (from the previous rate of 10%) of the amount realized by a foreign person that disposes of a "U.S. real property interest" (USRPI). Section 1445 contains withholding tax rules relating to the Foreign Investment in Real Property Tax Act (FIRPTA).
On or after February 17, 2016, any person (a “withholding agent”) that acquires a USRPI from a foreign person generally will be required to withhold an amount equal to this new rate of 15% of the amount realized by a foreign person, and to use Form 8288, U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests, to deposit that amount with the IRS no later than the 20th day after the acquisition. A withholding agent that fails to timely deposit the required amount generally will be jointly and severally liable for the amount it fails to timely deposit, plus penalties and interest.
To reflect the increase to 15% of the FIRPTA withholding tax rate specified in Code section 1445(a), and other changes to the FIRPTA rules made by the Protecting Americans from Tax Hikes Act of 2015, P.L. 114-113 (“PATH Act”), the IRS has issued new versions of Form 8288, U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests (Rev. February 2016), and of the Instructions for Form 8288 (Rev. February 2016).
The Instructions for Form 8288 (Rev. February 2016) discuss the increase in the Code section 1445(a) withholding tax rate, and also discuss other amendments made by the PATH Act to the rules relating to the FIRPTA rules in the Code that may affect filers of Form 8288. For example, these instructions also address the new exemption from FIRPTA tax and withholding for qualified foreign pension funds that was added by Section 323 of the PATH Act, and confirm that a qualified foreign pension fund or any entity wholly owned by such fund is not a foreign person for purposes of FIRPTA withholding reported on Form 8288.
The increase to 15% in the Code section 1445(a) withholding tax rate was made by Section 324 of the Path Act, as signed into law by President Obama on December 18, 2015 (the date of enactment). This increase was made effective for dispositions after a date which is 60 days after the date of the enactment of the PATH Act.
© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.