Navigating legislative hurdles to improve customer experienceBlog Published on Share
A major hurdle faced by individuals or businesses acquiring and disposing of overseas property assets is the complexity of dealing with legislative hurdles in different global jurisdictions.
From the Foreign Investment in Real Property Tax Act (FIRPTA) – 1981 in the US to exchange control requirements in South Africa, corporations and private clients need to have access to local experts in different jurisdictions across the globe to ensure that they carry out their business in an efficient and compliant manner.
The best way to achieve this is through a mutually beneficial network of local partners that together can connect the dots and successfully navigate the legislative landscape to provide a streamlined international property purchase and acquisitions service; each partner using their expertise to contribute to the whole.
When selecting a provider to assist in major currency transactions, it is not purely about getting the most cost-effective currency exchange. Many steps need to take place, which will depend on the individual jurisdiction, with a key step being the exchange of currency.
Working with experts to guide those buying or selling property through these steps is essential to avoid potentially costly compliance errors.
Take the US as an example. FIRPTA currently allows the US Internal Revenue Service (IRS) to withhold for potential capital gains tax (CGT) up to 10% of the proceeds of a sale below $1 million, and 15% for proceeds of $1 million and above. Working with lawyers and tax experts who understand this piece of legislation – who are familiar with its exceptions, and who are up-to-date on any changes and their impact on disposing of US real estate assets – is essential to reduce risk.
Or France. Here, proceeds of a sale must be earmarked for a French account held by the notary from which any CGT is paid before transfer abroad into a different currency.
Then, of course, any company active in FX is well aware that the ownership of property can be a sensitive issue. The buying and selling of residential property can particularly attract strict regulation with homeownership often being a political issue in many countries.
In the case of Australia, purchases by foreign companies, residents, temporary residents and short-term visa holders require approval from the Foreign Investment Review Board (FIRB). Purchases are permitted in some circumstances for investment properties, covering new buildings or vacant land, but not for established properties. However, an exception is made for an established property if it is being redeveloped.
The rules are different for commercial property and approval by the FIRB is a lot simpler than for residential property.
Navigating that yourself, even as a company with teams of legal experts, can be a pretty daunting task. Working with a network of property experts, including an FX payments and software firm like The Redpin Group, can be incredibly useful, ultimately saving you time and money.
How exactly does software and FX payments fit in?
Well, for example, some jurisdictions implement exchange controls. South Africa requires all incoming and outgoing funds for buying and selling property to be formally recorded with the South Africa Reserve Bank (SARB). Our in-house exchange control team has a comprehensive understanding of what is needed to complete reporting while also compiling the requisite documentation for future use by the client upon entry and exit to South Africa.
Another example of where an increased focus on software can connect the dots is anti-money laundering (AML). AML is an important regulatory, albeit arduous, process. It too often remains unnecessarily manual at a time when software can both speed it up and ensure a higher level of accuracy and transparency, streamlining the process and reducing risk for some of the key players in the property purchase process such as legal firms and lenders.
Finally, banks, lawyers and other bodies involved in overseas property transactions are increasingly stipulating that they only deal with currency exchange firms authorised by internationally recognised authorities such as the UK’s Financial Conduct Authority (FCA).
The Redpin Group includes FCA-authorised Electronic Money Institutions (EMIs) with the authority to move funds globally. EMIs are required to safeguard client monies by holding them in a segregated client accounts, separate from their own business, and which are designed to protect client funds in the event of the company’s insolvency or the insolvency of the banks used to hold client funds.
Redpin exists to connect the dots – and, in property FX, there are plenty of dots. While it’s not always necessary to work with a business like ours, you might find it actually saves you a lot of money (and from a lot of sleepless nights).
Please note that this blog doesn’t contain legal or investment advice. It’s very important that you always get independent legal and tax advice before entering any property transaction.
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