USA – NORTH CAROLINA Law and Practice Contributed by: John Livingston and Brittani Miller, Kilpatrick Townsend & Stockton LLP
7.5 Additional Forms of Security to Guarantee a Contractor’s Performance It is common for owners to seek performance and payment bonds as security for the contractor’s per - formance of the work. 7.6 Liens or Encumbrances in the Event of Non-Payment A contractor and/or designer is permitted to place a lien against the property in accordance with Chap - ter 44A of the North Carolina General Statutes in the event of non-payment for labour, services or materi - als provided during construction or improvement pro - jects. To remove the lien, property owners can (i) pay the amount claimed, (ii) negotiate a settlement, or (iii) dispute the lien’s validity in court. If the lien is invalid or improperly filed, the owner can seek its removal through legal proceedings. 7.7 Requirements Before Use or Inhabitation A certificate of occupancy must be issued before a project can be inhabited or used for its intended pur - pose. VAT is not payable on the sale or purchase of corpo - rate real estate. Instead, these transactions are sub - ject to other taxes, such as the real estate transfer tax, which is levied at a rate of USD1 per USD500 and typically paid by the seller, although this can be negotiated between the parties. Sellers may also owe income taxes on profits from the sale. Under N.C. Gen. Stat. § 105-228.29, certain real estate transactions are exempt from the real estate excise tax. Exemptions include: • by operation of law; • by lease for a term of years; • by or pursuant to the provisions of a will; • by intestacy; • by gift; • if no consideration in property or money is due or paid by the transferee to the transferor; • by merger, conversion or consolidation; and 8. Tax 8.1 VAT and Sales Tax
• by an instrument securing indebtedness. 8.2 Mitigation of Tax Liability
Structuring the transaction as an entity sale, where ownership of the entity holding the portfolio is trans - ferred rather than the properties themselves, avoids direct real estate transfer taxes. This is not common in North Carolina as transfer fees are relatively low. Utilising a 1031 exchange allows sellers to defer capi - tal gains taxes by reinvesting proceeds into like-kind properties. 8.3 Municipal Taxes Municipalities do not impose business rates or spe - cific taxes on the occupation of business premises as seen in some other countries. However, businesses occupying premises are subject to property taxes, which are assessed annually by counties and munici - palities based on the value of the real estate and, in some cases, the business’s tangible personal prop - erty. Some occupations require state-wide licensing permits, which have nominal fees. 8.4 Income Tax Withholding for Foreign Investors Foreign investors in US real estate are subject to fed - eral income tax withholding under the Foreign Invest - ment in Real Property Tax Act (FIRPTA). North Carolina also requires state income tax withholding on certain real estate transactions involving foreign individuals or entities. FIRPTA withholding exemptions may apply if the property is sold for less than USD300,000 and the buyer intends to use it as their primary residence, or if the seller provides a certificate from the IRS showing reduced or no withholding is required. North Carolina withholding exemptions may apply for transactions where no taxable gain is realised, but proper docu - mentation must be provided. For rental property, foreign investors earning rental income from the real estate are subject to federal income tax and there are no exemptions. 8.5 Tax Benefits Commercial properties may qualify for deprecia - tion deductions, allowing owners to offset business income by depreciating the cost of the building over time. Property taxes paid on commercial real estate
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