USA – SOUTH CAROLINA Law and Practice Contributed by: Matt Norton and Christian Kolic, K&L Gates
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 USA on income from the prop - erty 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” corpo - rations, to limit the tax liability and withholding obligations with respect to foreign 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 that qualify as “deemed residents” .
8.5 Tax Benefits South Carolina is known for taking an aggressive approach to economic incentives for businesses opening and conducting operations in the state. These incentives include both tax credits and the reduction of property taxes, and are typically based on the size and scope of the operation, the number of jobs created and the wages those jobs command, as well as the facility’s geographic location within the state. South Carolina coun - sel working in this area should be consulted to assist in structuring incentive packages, which may include fee-in-lieu-of-tax agreements, job tax credits, payroll tax rebates, tax abatements, capital credit agreements, tax increment financ - ing and various types of infrastructure grants. The owner of real property is generally entitled to take deductions for depreciation with respect to buildings and improvements located on the land. In addition, investors in real property who are not dealers in that property and have met the requi - site holding periods may be entitled to defer the recognition of gain on the sale of real property by entering into a like-kind exchange pursuant to Section 1031 of the Internal Revenue Code. Finally, property owners who invest the capital gain proceeds from the sale of real property into an opportunity zone project may defer or reduce the amount of gain ultimately recognised. Developers can also benefit from South Caroli - na-specific tax credits related to historic building rehabilitation and abandoned building revitalisa - tion. Real property owners who develop solar farms on their property may be entitled to state and federal tax credits.
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