New York’s Foreign Investor Regulations in Real Estate

Legal Help for Foreign Real Estate Investments

New York real estate has long been favored for foreign investors seeking stable, high-value assets. From luxury condominiums in Manhattan to large-scale commercial properties, the New York market offers unparalleled opportunities. However, the regulatory environment has grown increasingly complex, making it crucial for international investors to understand both local and federal rules before proceeding. Compliance is not only essential for successful transactions but also for avoiding costly legal consequences that can derail even the most carefully planned investments.

Foreign investors face specific challenges that domestic buyers may not encounter, including disclosure obligations, federal oversight, tax implications, and security-related purchase restrictions. Staying informed about these evolving regulations is a critical first step in protecting an investment and ensuring smooth, compliant ownership of New York real estate assets.

Disclosure and Transparency Requirements

In recent years, there has been a significant shift in how New York regulates corporate ownership transparency, directly impacting foreign investors. The New York State Department of Financial Services (DFS) has tightened requirements for disclosure and anti-money laundering compliance. Financial institutions must now conduct heightened due diligence on corporate clients, especially those that hold real estate assets, and ensure that the ultimate beneficial owners are identified and reported.

One of the most significant changes is the New York LLC Transparency Act, which took effect in 2024. This law requires all limited liability companies (LLCs) formed or registered to do business in New York to disclose their beneficial owners to the New York Department of State. While this information is not immediately available to the public, it must be provided to law enforcement and government agencies upon request. The Act was designed to deter the use of anonymous shell companies for money laundering, tax evasion, and other illicit activities.

Key disclosure requirements foreign investors must meet include:

• Beneficial Ownership Reporting: All individuals who directly or indirectly own or control 25% or more of the entity must be identified.
• Certification of Compliance: Failure to certify compliance with disclosure requirements can result in substantial fines and administrative dissolution of the LLC.
• Recordkeeping Obligations: Investors must maintain accurate ownership records for at least five years after the dissolution or termination of the LLC.

Federal Oversight and FIRPTA Compliance

Foreign investors in U.S. real estate must also navigate federal regulations, particularly those under the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA). FIRPTA imposes a tax on foreign persons disposing of U.S. real property interests. Under this law, buyers are generally required to withhold 15% of the gross sales price and remit it to the Internal Revenue Service (IRS) at closing.

The impact of FIRPTA can significantly affect a foreign investor’s returns. Even when the actual capital gains tax liability is lower, the full withholding amount must be remitted unless the seller applies for a withholding certificate that adjusts the amount based on the anticipated tax liability.

Key points foreign investors must understand about FIRPTA include:

• Mandatory Withholding: Buyers must withhold 15% of the gross amount realized unless an exemption applies.
• Withholding Certificates: Foreign sellers can apply for a reduced withholding by submitting IRS Form 8288-B prior to the sale.
• Residency Exceptions: Certain transactions involving U.S. real property used as a residence by the buyer may qualify for reduced or waived withholding.

Failing to comply with FIRPTA obligations can result in severe penalties for both the buyer and the seller, making it critical to integrate FIRPTA considerations into every stage of a real estate transaction.

Limits on Certain Property Purchases

Beyond disclosure and tax compliance, foreign investors must be mindful of special restrictions that limit their ability to purchase certain types of property in New York. Some local and federal regulations impose restrictions based on national security concerns, particularly for properties near sensitive sites such as military installations or critical infrastructure.

The Committee on Foreign Investment in the United States (CFIUS), an interagency body, has broad authority to review and potentially block real estate transactions involving foreign persons. The CFIUS process expanded under the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), allowing the committee to scrutinize real estate transactions that are located within certain proximity to sensitive government properties.

Important considerations regarding property purchase limits include:

• Sensitive Site Proximity: Properties near airports, ports, military bases, and other key infrastructure may trigger CFIUS review.
• National Security Reviews: CFIUS can recommend that the President block or unwind transactions that pose risks to national security.
• Advance Planning: Investors should conduct thorough due diligence to determine whether their intended property is located within a CFIUS “covered” area.

Proper planning and early legal consultation can help foreign investors avoid regulatory surprises that could derail their real estate investments.

Tax Implications and Withholding Requirements

Real estate transactions in New York come with substantial tax implications, and foreign investors must be particularly attentive to additional local taxes. In addition to the federal FIRPTA withholding discussed earlier, New York imposes transfer taxes, mansion taxes, and sometimes additional surcharges on high-value property purchases.

Key taxes applicable to foreign investors include:

• New York State Transfer Tax: A 0.4% tax on the value of transferred real estate, payable by the seller unless otherwise negotiated.
• New York City Real Property Transfer Tax: Ranges from 1% to 2.625%, depending on the transaction size and property type.
• Mansion Tax: The tax applies to residential properties valued at over $1 million, with rates starting at 1% and scaling higher based on the price.
• Additional Transfer Surcharges: Some high-value sales are subject to supplemental “progressive” mansion tax rates and surcharges.
• FIRPTA Withholding Overlap: Federal FIRPTA withholding does not replace state and local transfer tax obligations, meaning investors must budget for both.

Understanding these layered tax obligations is essential for accurately estimating acquisition and disposition costs and preserving investment returns.

Strategies for Compliance and Investment Structuring

New York’s complex regulatory environment demands careful planning. Many foreign investors use strategic legal structures to minimize liability, protect assets, and streamline compliance with federal and state regulations. Choosing the right entity type and structuring ownership interests thoughtfully can make a substantial difference in an investment’s success.

Common structures foreign investors use include:

• Limited Liability Companies (LLCs): Offer flexibility, liability protection, and ease of ownership transfers, though subject to new transparency requirements.
• Limited Partnerships: Useful for investors who wish to separate management control from investment ownership.
• Trusts: Provide privacy and estate planning advantages but require careful drafting to comply with U.S. tax rules.
• Corporations: Sometimes used for larger investment portfolios, offering clear governance structures but subject to potential double taxation.
• Private Investment Vehicles: Customized structures tailored to investors’ specific needs, often involving cross-border considerations.

Working with experienced real estate attorneys and tax professionals from the start is critical. Legal counsel can help ensure regulatory compliance, design tax-efficient structures, and preempt potential liabilities that could otherwise harm the investment.

Work with Rolo Law for Reliable Real Estate Investment Guidance

When it comes to investing in New York real estate, foreign investors face a maze of disclosure, tax, and regulatory challenges. At Rolo Law, we understand the nuances of both state and federal law and provide strategic, personalized counsel to help you achieve your investment goals.

Contact Rolo Law today at 845-668-4774 to schedule a consultation to ensure your investment is protected at every phase.