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Two salient issues are presented here. One is the recent IRS regulation, Foreign Account Tax Compliance Act (FATCA), which concerns US resident-citizen overseas accounts. Here we have an analysis by banker Matthew Beem, Stanford MBA and current president of the Chartered Financial Planners of Miami, about this US regulation as it affects US holders of real property in Argentina.

Second, as the majority of foreign buyers of US property from South America purchase in Miami, we spent time on the ground in Miami, and elsewhere, such as Palm Beach Island, delving into the risks of hurricane damage and insurance. We were pleased, for buyers, what we discovered in Florida.

Essentially, below is all good news. However, the Argentine real estate market is still difficult for some foreign buyers to understand. Therefore, for non-Argentines interested in purchasing real estate in Argentina, please review the second article of our just-prior newsletter / Autumn (Argentina) 2014 N°3 / by Julian Monti, to learn something about bringing money into Argentina to buy property.

1. FATCA and US RESIDENT PROPERTY OWNERSHIP IN ARGENTINA – Matthew Beem

As a result of recent numerous high-profile tax evasion cases that involved US citizens with undeclared funds deposited with foreign financial institutions, the US government has recently implemented the Foreign Account Tax Compliance Act, or FATCA. The main objective of FATCA is to ensure all US persons (i.e. US citizens or permanent residents) holding financial assets outside the United States pay all applicable US taxes. The burden of compliance is placed on the foreign financial institution (FFI), which are required to enter into an agreement with the US Treasury or to comply with Intergovernmental agreement rules. In essence, the FFI’s are required to identify accounts held by US persons or accounts economically controlled by US persons (i.e. trusts, corporations, etc.) and to report annually these accounts to the IRS. There are many facets of the law that are important for an international investor to be aware of, but the main focus of this brief article is to discuss FATCA’s impact on US citizens who are landowners in Argentina.

It is important to note FATCA applies to financial accounts, so in terms of US persons holding real state in Argentina, there is no reporting requirement, either self-reporting or by an FFI (primarily because the asset is not held by an FFI). However, if the US person has a bank account in Argentina which is created to receive rents or other passive income, and that account at any point in time has a balance more than $50,000, then the Argentine FFI where the account is held is then required to comply with FATCA and report that account to US authorities. If the account never reaches that amount, then there is no reporting requirements from the FFI. Furthermore, if the account has at any point a balance greater than $10,000, then the account holder is required to self-report via FBAR (Report of Foreign Bank and Financial Accounts). If the account holder does not self-report, then the holder is subject to heavy fines. In other words, if at any point a foreign account held by a US person has a balance over $10,000, there is some sort of reporting requirement, either by the holder or by the FFI. If this is not the case, there are no further reporting obligations required.

Without a doubt, FATCA is an important development in US tax compliance, and we always recommend consulting a tax advisor for specific circumstances.

Matthew Beem has extensive experience in the financial sector, holding a wide array of positions throughout wealth management, investment advisory, and asset allocation strategies.

He began his career in Buenos Aires, Argentina at the think tank “Fundacion Mediterranea”, founded by the former Argentine finance minister Domingo Cavallo. During his two-year stint there, he covered the Brazilian economy, was on a team commissioned by the World Bank to compare the Brazilian devaluation of 1999 with the Argentine crisis of 2002, and wrote analysis of the Brazilian presidential transition of 2002 for both South American and US-based publications.

He has also previously held several positions in Miami-based private banks, including Citi Private Bank, where he made asset allocation decisions for HNW portfolios.

Matthew is fluent in Spanish and Portuguese, a CFA charterholder (Chartered Financial Analyst), holds degrees from Trinity University and Stanford University. He also currently serves as the president of CFA Miami.

2. CITIZENS PROPERTY INSURANCE, THE STATE OF FLORIDA

As we embarked on learning about the various angles of storm coverage insurance in Florida, the research we did on the ground there, in Florida, at first indicated there might have been very serious, potentially vicious pitfalls for investors, as we heard from Florida insurance professionals that Citizens Property Insurance had been attempting to unload certain policies, and so we took this as a warning signal, and therefore a potentially hazardous situation for investors in Florida real estate.

However, after discussions with realtors and insurance specialists in Florida, we have the following conclusion: Although it absolutely goes against the fundamental investment rule, dictating one should never have all of one’s eggs in one basket (Ie. South American investors who have a particularly strong appetite for Florida real estate), the fact seems to be the State of Florida has a system similar in-effect to a general obligation bond, which thereby seems to adequately protect insured property owners from catastrophic risk, since storm-risk seems to be essentially shared state-wide.

We see the primary risk, therefore, given what we’ve been told, as political and/or governmentally systemic. This means delayed payout by Citizens to policy holders could occur for some policy holders in case of a mammoth catastrophe. We see possible payout-delay risk due to political pressure on politicians/agencies from zones of the state less-affected by a storm (Ie. inland portions of the state, where residents are less-affected by ocean-born storms, would be obligated to pay for damage caused to the property of their “wealthier,” ocean-front neighbors). An imbalanced scenario such as this, and in which Citizens Property Insurance would be tapped to the hilt, could see legislators try to win political points among less-catastrophe-affected constituents by making moves to change existing law, or to try to do something else impeding property payouts. Similarly, there’s always the potential that a government bureaucrat could be slow in paying, for whatever the reason, and inertia of this type would hurt.

In sum, we think worst-case scenario would be Citizens policy holders might experience delays due to political gamesmanship, a government-related snafu, or inertia, but that, as Bill Beckham of JM Private Insurance in Miami states “the current alternatives to Citizens Insurance are very limited” and we think the system, as set up by the State of Florida currently, is a good one, and one most likely to be replicated in other US states.

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This newsletter is not intended to provide legal or accounting advice or opinion. Such advice may only be given when related to specific fact situations, and under consultation of legal and/or accounting professionals. Circular 230 DISCLAIMER – any US federal tax advice which may be mentioned by professionals in this newsletter is not intended to be used, and cannot be used, for the purpose of avoiding federal penalties due.
Traducido por Hernán Merea, RGA Language Services rgalanguageservices.com