Just to restate a previous point slightly differently, nobody should care about only one particular stage in the “tax pipeline.” If you’re looking at tax implications, look at all of them, end to end. SREITs pay plenty of tax.
Yes, and I didn’t suggest U.S. listed REITs for non-U.S. persons. And actually it’s 30%, isn’t it? (For residents of Singapore and of other non-treaty countries.)
To some extent, but the “S” means they’re based in Singapore, and they skew heavily toward local and regional real estate. I have no reason to forecast that that particular skew and basing will be more or less advantageous than any others.
It’s a moot issue for me, but even if it weren’t a moot issue, I can think of no reason to assume that SREITs are any more or less wonderful than GREITs, TREITs, JREITs, KREITs, QREITs, or FREITs. Except for currency correlation when that starts to matter; see below.
I’m not recommending those either. I’m not recommending REITs at all, not in general. But, if you allocate some percentage of your savings to REITs, how about a low cost global REIT index fund? Makes sense to me, for maximum available geographic diversification. Unless you’re approaching retirement in Singapore when currency correlation starts to matter.
SREITs (and GREITs, TREITs, JREITs, KREITs, QREITs, and FREITs) are among the many possible investments that the U.S. Internal Revenue Service defines as “Passive Foreign Investment Companies” (PFICs). While it’s possible and legal for U.S. persons like me to invest in PFICs — notwithstanding the fact that certain investment companies and institutions, SREITs included I imagine, bar U.S. persons from investing in their wares since they’re confused about applicable U.S. law on this point, specifically the “Safe Harbor” provisions — the tax and reporting implications are not favorable. I choose to avoid all PFICs, and I recommend that other U.S. persons also avoid PFICs. It’s just not worth the paperwork complexity, plus there’s usually some higher tax.
To dig into this a little more, for a U.S. person a U.S. domiciled REIT or REIT fund would generally distribute some or all of its dividends as qualified dividends, meaning they qualify for a lower tax rate. The top marginal tax rate on qualified dividends is currently 23.8% (inclusive of the NIIT), and even at the top marginal rate that beats the 30% dividend withholding tax rate I assume you’d have to pay. Moreover, foreign income tax that the REIT or REIT fund pays is creditable. For example, if the REIT or REIT fund paid 5% to German tax authorities (or whatever), you get to take that 5% as a foreign tax credit, and that usually drives down the top U.S. marginal rate to 18.8% in this example. (I say “usually” because FTCs are a bit complicated, but that’s the gist of it.) Any capital gains are tax deferred, and U.S. domiciled REITs/REIT funds can be held within U.S. tax advantaged accounts such as IRAs and 401(k)s where dividends and capital gains can be either tax deferred (“Traditional”) or tax exempt (“Roth”). All the tax-related figures are conveniently reported in annual “1099” forms, so it’s simple to report and to calculate, and you don’t have to deal with any extra PFIC-related forms (plural). And it can be a REIT that invests in Swiss real estate if you want — the real estate itself can be anywhere except, of course, in embargoed/sanctioned countries. It’s just the trust, or fund of trusts, that has to be U.S. domiciled for these purposes. Plus there’s the fact that the U.S. domiciled stuff generally has really low costs since it’s the largest and most competitive financial market.
Too much information, probably.
