National CRE News In Your Inbox.

Sign up for Connect emails to stay informed with CRE stories that are 150 words or less.

Sub Markets

Property Sectors


National  + Weekender  | 

Senate Bill Threatens Longstanding Tax Policies on Foreign Investment

The recent merger between the Professional Golf Association and the Saudi Public Investment Fund has prompted action from the Senate Finance Committee chairman, Ron Wyden (D-OR). Wyden’s proposal, says the Real Estate Roundtable, could lead to “severe” consequences. 

In late July, Wyden introduced the Ending Tax Breaks for Massive Sovereign Wealth Funds Act. It would amend Section 892 of the Internal Revenue Code to end the exemption for sovereign wealth funds and similar foreign government investment funds from a 30% withholding tax on payments such as dividends and interest. The bill would apply to government funds that have more than $100 billion invested globally.  

An exception would apply to countries that have a free trade agreement or a tax treaty with the U.S. and are not deemed by the State Department a “foreign country of concern,” according to a release from Wyden. Countries that are expected to be made ineligible for the tax break include Saudi Arabia, Russia, China, Qatar, the United Arab Emirates and Kuwait. 

Some of the listed countries are large investors in U.S. commercial real estate and represent a key source of capital for U.S. real estate investment, the Roundtable says.  

“Section 892 is nearly as old as the tax code itself, and the tax principle it represents—sovereign immunity for foreign governments—is older than the tax code,” said Roundtable president and CEO Jeffrey DeBoer. “Disrupting and rewriting these rules on a whim because of a single transaction is risky and unwarranted. The consequences for U.S. real estate, jobs, and the economy could be severe.” 

He continued, “The United States is able to attract foreign capital for jobs and productive real estate investment because foreign investors have confidence in our rule of law. They believe the USA is a safe place to invest. When leading lawmakers threaten to overturn 100-year-old tax policies because of a single, unpopular transaction, it raises legitimate concerns. Congress should tread carefully in this area and fully understand the potential implications of its action.” 

Added CBRE’s global head of capital markets, Christopher Ludeman, “Sovereign wealth funds are among the largest and most important investors in global real estate, especially in the U.S. where, by conservative estimates, they have invested over $25 billion since 2021. At a time when capital flows into real estate are scarce, transaction volume is down by 53% in the first half of 2023 compared to the first half of 2022. In this environment, SWFs are an important source of capital, investing close to $9.7 billion this year alone. This is the wrong time to put any new restrictions on capital flows into real estate, which this bill would do.”  

The section 892 tax exemption for foreign governments doesn’t extend to commercial activities or active ownership of U.S. real estate. Income from an interest in a U.S. real property-holding corporation that a foreign sovereign does not control is generally exempt from U.S. tax as income from an investment in a U.S. security. That’s consistent with the general rule that section 892 is limited to passive investments, says the Roundtable. 

Over the years, Treasury guidance and IRS rulings have further defined the scope of the provision and its interaction with other tax provisions, such as section 897 and the Foreign Investment in Real Property Tax Act, says the Roundtable. The original version of section 892 was enacted in 1917 and is based on Supreme Court case law that dates to 1812. Similar foreign government tax exemption regimes apply in other countries, such as the United Kingdom, Canada, Australia and Japan 

Wyden’s bill includes grandfathering rules that would apply to certain investments through 2025. The rules would cover capital deployed or committed prior to enactment and investments in publicly traded companies, provided the investment is less than 10%. Any grandfathering benefits would expire beginning in 2026.


Inside The Story

Real Estate RoundtableCBRE's Ludeman

About Paul Bubny

Paul Bubny serves as Senior Content Director for Connect Commercial Real Estate, a role to which he brings 13-plus years’ experience covering the commercial real estate industry and 30-plus years in business-to-business journalism. In this capacity, he oversees daily operations while also reporting on both local/regional markets and national trends, covering individual transactions across all property types, as well as delving into broader subject matter. He produces 15-20 daily news stories per day and works with the Connect team and clients to develop longer-form content, ranging from Q&As to thought-leadership pieces. Prior to joining Connect, Paul was Managing Editor for both Real Estate Forum and at American Lawyer Media, where he oversaw operations at both publications while also producing daily news and feature-length articles. His tenure in B2B publishing stretches back into the print era, and he has served as Editor in Chief on four national trade publications. Since 1999, Paul has volunteered as the newsletter editor of passenger rail advocacy groups (one national, one local).

  • ◦Financing
  • ◦Policy/Gov't
New call-to-action
New call-to-action