A U.S. based Real estate investment trust or REIT, is a company that owns, operates or finances income-producing real estate. REITs can take various corporate forms, such as corporations, business trusts, or limited liability companies.
U.S. REITs are generally not subject to U.S. income taxation when certain criteria are met. Instead, the shareholders of the U.S. REIT are subject to U.S. taxation upon receipt of a distribution from the REIT.
A foreign entity or individual can incorporate REITs to invest in U.S. real estate indirectly and may enjoy capital gains tax exemptions on sale of REIT stocks. This tax exemption applies as long as the REIT is considered “domestically controlled,” meaning that less than 50% of its stock value is owned directly or indirectly by foreign investors.