An investor looking to sell property will be primarily concerned with the tax treatment of the capital gain. In contrast, an investor looking to operate the property will be primarily concerned with the tax treatment of operating profits. The tax analysis must be broad. We begin at home. Although most sophisticated hospitality investors understand the tax laws of their own country, international investors must go one step further.
Most countries tax foreign income differently than domestic income.
Other countries, including the United States, apply taxes only to the extent that income is taxed at a lesser rate outside the home country. Since foreign source income is generally given special treatment, the home country may restrict the ability of the investor to deduct expenses associated with foreign source income. Interest paid on debt incurred to make a foreign investment, for example. The hospitality investor should consider any special tax regimes of the home country and evaluate how the foreign source income will be treated for local country tax purposes. For instance, many U.S. investors strive to generate qualified capital gains to obtain a lower tax rate.