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What is tax equity investment?

Would a foreign company pay capital gains tax on a private equity investment in a Delaware corporation?

  • Scenario: BVI company buys shares of Delaware corporation. Years later, corporation is acquired and shares are sold for a profit. Does the BVI company owe capital gains tax in the US?

  • Answer:

    There could be other factors, such as the ownership of the BVI company. But assuming the BVI company is owned by a non-resident alien, the IRS will likely tax the income from the sale of the shares in the Delaware corporation at a flat rate of 30%. The IRS has a guide for this question, which you should consider as well: http://www.irs.gov/publications/p519/ch04.html#en_US_publink1000222305. There could be other strategies to reduce this tax based on tax treaties, but that is a topic far beyond the scope of this question. Hope this helps!

Quinn Smith at Quora Visit the source

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No, the BVI company is not taxable in the US on the sale of these shares as long as the Delaware corp is not heavily invested in real estate.  The US wants to encourage foreign investment, so selling stock of US companies generally isn't a taxable event. If the BVI corp is owned by non-US persons, then that's the end of it--there's simply no US tax to pay here.  However, a US person who owns at least part of the stock of the BVI company will be subject to US tax at one point or another depending on the facts.  If the US person wholly owns the BVI company, then the gain realized by the company is "Subpart F income," which requires the US person to pay tax on the gain immediately.

Stewart Patton

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