Colorado is one of the strongest players in international markets and in the Rocky Mountain Region and continues to attract substantial foreign investment. Are you and your company succeeding in attracting foreign buyers and sellers to your real estate business and projects? Here is a check list that may help you, or at least prompt you to focus on international customers.
First, here are some facts to get you started. According to statistics from the Bureau of Economic Analysis, foreign owned companies employ more than 90,000 people in Colorado and own over $28 billion in gross property, plant and equipment. They pay 13% higher wages on average than U.S. private sector businesses.
The National Association of REALTORS estimates that international buyers purchased more than $82 billion worth of US property in 2010. The major sources of foreign investment in Colorado are the United Kingdom, Canada, Germany, Switzerland, Japan and the Netherlands. Recently, a new non-stop flight from Tokyo to Denver and a new non-stop flight from Iceland to Denver have been announced which when added to the direct flights at Denver International Airport from Germany, England, Mexico and Canada will increase foreign investment in the Rocky Mountain Region.
Our firm has been fortunate to represent many foreign owned companies including assisting them in establishing businesses, making investments, and acquiring real estate in the region. Most of those companies are from the EU, Asia, South America and our neighbors in North America.
1. Focus: You may have more success if you focus on only one or two countries because you will need to understand and appreciate the culture, customs and business practices of the country, have your professional cards translated if necessary, and understand how decisions on real estate are made within companies from that country. Equally important, you will need to join and support organizations related to that country so you will learn about the country and develop contacts with that country. Examples include World Trade Center Denver, Asian Chamber, Hispanic Chamber, Japan America Society of Colorado, German American Chamber, and Institute of International Education, just to name a few.
2. Learn: Real estate transactions with foreign persons or companies involve laws and procedures with which you must become familiar. Resources are available including law firms and accounting firms to assist you but here are three points for your consideration.
FIRPTA Withholding Rules: A foreign person, including a foreign entity, may purchase real estate in the US and even rent it. Relevant issues include choice of an entity to own the property and various tax issues, especially under the Foreign Investment in Real Property Tax Act ("FIRPTA") which subjects the foreign owner to a US tax upon disposition of the real property. Unless an exception applies, the buyer of foreign- owned real estate is obligated to withhold and pay a tax to the IRS which can be 10% of the amount realized by the seller on the transfer or a higher percentage of any gain recognized by a corporation or partnership.
Paying Referral Fees: If you are a licensed real estate broker in Colorado you must comply with Rule E-23 of the Colorado Real Estate Commission in international transactions. E-23 provides that the Colorado broker may pay a finder's fee or share of a commission to a broker in another country if (a) the broker maintains an office in that country, (b) all advertising, negotiations, contracting and conveyancing done in Colorado must be performed in the name of the licensed Colorado broker, and (c) all money collected from the parties must be deposited in the name of the licensed Colorado broker and then disbursed to the broker in the other country. Not all countries require real estate brokers to be licensed. If the broker to be paid the referral fee or share of the commission is not licensed in the other country the Colorado broker may still pay the fee if the other broker represents that they are engaged in the business of selling real estate in that country. The Colorado broker should retain records which reflect compliance with Rule E-23.
Investment Incentive Programs: Most foreign companies considering establishing a business in the Region will expect you to be familiar with the incentive programs available locally and through the state which might benefit them. Colorado offers several incentives including debt and equity financing, cash incentives, grants, and tax credits to support economic development activities that improve and support employment opportunities in Colorado. You can learn more about these programs by contacting Colorado's Office of Economic Development and International Trade.
?3. Respect: Even if you focus on only one or two countries, learn about their customs and culture, receive education and advice about applicable laws, and develop good contacts by supporting appropriate international or country specific organizations in your community, you will not be successful unless you respect the foreign consumer and most importantly, respect their customs and culture. Your respect will be returned by them and it will lead to long standing and mutually beneficial real estate transactions.