USA - SOUTH CAROLINA Law and Practice Contributed by: Matt Norton and Christian Kolic, K&L Gates
8. Tax 8.1 VAT and Sales Tax
8.4 Income Tax Withholding for Foreign Investors Foreign purchasers of real estate should review whether applicable treaties exempt such pur - chaser from the imposition of general income tax withholding requirements by the state of South Carolina or the United States on income from the property purchased or on proceeds from the resale of such property. Absent such a treaty-based exemption, it may be possible to use appropriate transaction structures, such as “blocker” corporations, to limit the tax liability and withholding obligations with respect to for - eign investors. Under the federal Foreign Investment in Real Property Tax Act, up to 15% of the proceeds from the sale of real property by a foreign seller may be required to be withheld from the foreign seller to be applied to federal income taxes. In addition, under South Carolina law, foreign investors that are deemed “non-resident sellers” may be subject to withholding with respect to the proceeds of the sale of South Carolina real property to the extent of the gain recognised by the investor under the income tax laws. South Carolina law provides that “non-resident sell - ers” include individual residents outside of the state, entities organised outside of the state, and trusts administered outside of the state. An entity formed under the laws of South Carolina is considered a resident; accordingly, taking title to South Carolina property in a South Carolina- organised subsidiary may avoid any otherwise applicable requirement for the withholding of a portion of the proceeds of the sale of the prop - erty. There are limited exceptions to this with - holding requirement for foreign investors who qualify as “deemed residents”.
The gain on the sale of real estate is taxed as income under general state and federal income tax laws. In addition, there is a transfer tax levied on transfers of ownership of real estate evidenced by deeds, which is typically paid by seller, and the rate is USD1.85 per USD500 of the sales price, subject to limited statutory exemptions. There is no sales tax on the sale of corporate real estate. 8.2 Mitigation of Tax Liability In some cases, transfer tax (deed recording fee) may be avoided or reduced by structuring the transaction appropriately. For example, the deed recording fee may be avoided by contributing the property to be sold to a single-member LLC and then selling the equity in that single-member LLC to the economic purchaser of the property. 8.3 Municipal Taxes Although in most jurisdictions there is a busi - ness license tax assessed against businesses at the county and city level, this tax is based on gross revenues of the business in the jurisdiction and not on the property per se. The ownership and operation of real property would constitute a business subject to this business license tax. In addition, commercial properties may be sub - ject to solid waste disposal, stormwater, and other user fees. South Carolina law also allows for special assessments of property for adjacent improvements (such as street paving). There are no specific occupancy taxes or taxes on rent other than ordinary state and federal income taxes.
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