REALWorld Law

Real estate finance

Restrictions on payments to foreign lenders

Are there any restrictions on re-payments being made to a foreign lender under a security document or loan agreement?

Angola

Angola

The Foreign Exchange Law governs commercial and financial transactions having an actual or potential impact on the balance of payments of Angola, and applies to capital transactions and foreign exchange trading.  The following are deemed the most important foreign exchange (FX) operations:

  • Purchase or sale of foreign currency
  • Opening and operation of foreign currency accounts in Angola by FX or non-FX residents
  • Opening and operation of local currency accounts in Angola by non-FX residents, or
  • Settlement of any transaction relating to goods, invisible items of trade (eg services) or capital

Payments between FX residents and non-FX residents are subject to BNA’s control.

Australia

Australia

There are no restrictions on repayments being made to foreign lenders under security documents or loan agreements. However, parties will need to consider their obligations in respect of payment of withholding tax. There are restrictions on payments that have a prescribed connection with certain countries and terrorist groups.

Belgium

Belgium

There are no general restrictions on payments made to foreign lenders under a security document or loan agreement.

As far as the financing of real estate investments is concerned, both private individuals and legal entities not resident in Belgium may invest in Belgian real estate, whether outright or via the means of a company, and may obtain loans for this purpose from both Belgian or foreign banks without any restriction or limitation. However, by virtue of Belgian domestic tax law and certain Belgian tax treaties, the source of the interest payment may be considered to lie where the real asset is located, ie in Belgium. In such a case, the borrower can be liable to pay a withholding tax on the interest payments to the bank. The payment of such withholding tax could turn out to be significant for the lender or, if a gross-up is provided for in the loan agreement, for the borrower. 

Bosnia-Herzegovina

Bosnia-Herzegovina

No such restrictions exist.

Canada

Canada

There are no restrictions on repayments being made to foreign lenders under security documents or loan agreements. However, parties will need to consider their obligations in respect of payment of withholding tax. There are also restrictions on payments that have a prescribed connection with certain countries and terrorist or other restricted groups.

China

China

Yes, the State Administration of Foreign Exchange does not process any foreign offshore currency loans for real estate foreign-invested entities (FIEs).

Croatia

Croatia

Interest on loans by foreign banks or other financial institutions is paid gross, ie free of withholding tax.

If the lender is not a bank or financial institution, a local company will be required to pay withholding tax unless it obtains a certificate for the avoidance of double taxation.

Czech Republic

Czech Republic

There are no restrictions on payments made to foreign lenders. A borrower may be required to deduct withholding tax in respect of interest which is payable to a foreign lender.

Denmark

Denmark

There are no restrictions on payments made to foreign lenders under a security document or loan agreement unless the foreign lender is subject to financial sanctions imposed by the Kingdom of Denmark due to foreign policy or by obligation to international duties.

France

France

There are no restrictions on payments made to foreign lenders under a security document or loan agreement.

A borrower may be required to deduct withholding tax in respect of interest which is payable to a foreign lender, if the conditions which relate to withholding tax on interest payments are met.

Germany

Germany

There are generally no restrictions on repayments being made to foreign lenders under a security document or loan agreement.

Under German national tax law, banks and other financial services providers must withhold taxes on interest payments made to foreign lenders which do not themselves qualify as a bank or financial services provider.

In addition, lenders enjoying security over German real estate must pay a certain limited amount of income tax on interest arising in Germany. This only becomes relevant for lenders resident in countries which do not have a double taxation treaty which excludes Germany’s right to levy taxes on interest paid to foreign lenders.

If, however the foreign lender has a permanent establishment in Germany and the loan is attributable to this permanent establishment, the foreign lender is subject to German taxation on the profit resulting from the loan. Depending on the applicable double taxation treaty the interest will generally be either tax exempt in the foreign jurisdiction or the German tax will be credited against the tax liability which arises in that foreign jurisdiction.

Hong Kong, SAR

Hong Kong, SAR

There are no restrictions on payments made to foreign lenders under a security document or loan agreement.

Hungary

Hungary

There are no additional restrictions on payments being made to foreign lenders in Hungary. Depending on the lender’s tax residence, a withholding tax may apply to interest payments.

Ireland

Ireland

There are no restrictions on payments made to foreign lenders under a security document or loan agreement.

A borrower may be required to deduct withholding tax in respect of interest which is payable to a foreign lender, or its agent, in certain circumstances.

Italy

Italy

In principle, interest on loans paid by an Italian resident borrower to a non-resident lender are subject to source taxation in Italy. The Italian borrower must apply a final withholding tax at a rate that varies depending on the residency of the lender (ie within or outside the European Union), levied on the gross amount of the interest paid. The final withholding tax is not applicable if the foreign lender has an Italian permanent establishment. In such case, interest received by the foreign lender through its Italian permanent establishment is qualified as 'business income' and taxed accordingly in Italy.

Please note that – save for the regulatory Italian rules concerning the reserve for carrying out lending activities – interests paid by Italian companies under medium- and long-term facilities made available by:

  • Financial institutions (enti creditizi) established in any European Member States
  • Entities identified in Article 2, paragraph 5, from no. 4) to 23), of the EU Directive 2013/36/EU
  • Insurance companies incorporated and authorized under regulations of any European Member States
  • Foreign institutional investors (whether or not considered liable to tax (soggettività tributaria) under Italian laws) which are regulated entities (ie subject to the control of supervisory authorities) in countries guaranteeing adequate exchange of information with the Republic of Italy,

are exempt from any withholding tax.

Moreover, the abovementioned withholding tax can be reduced to zero in case of payment to EU resident lender if the conditions provided by the Interest and Royalty EU Directive (ie Directive 49/CE dated 3 June 2003) are met.

If the abovementioned exemptions are not applicable, the domestic withholding tax can be reduced according to the provisions set forth by the relevant double-tax treaty (ie DTT). Usually, DTTs signed between Italy and other countries reduce the amount of the withholding tax applicable to a reduced rate where certain conditions are satisfied.

Japan

Japan

There are no restrictions on payments made to foreign lenders under a security document or loan agreement.

A borrower may be required to deduct withholding tax in respect of interest which is payable to a foreign lender depending on the jurisdiction of incorporation of the parties and the application of any relevant tax treaties.  The allocation of any tax risk is dealt with on a transaction by transaction basis in the facility agreement.

Netherlands

Netherlands

There are no restrictions on payments made to foreign lenders under a security document or loan agreement.

Nigeria

Nigeria

There are no restrictions to repayment of foreign loan facilities under financing documents. However, it is worthy of mention that the foreign lender should obtain a certificate of capital importation (CCI) at the point of advancing the loan capital to the Nigerian entity. A CCI guarantees ease of repatriation of the loan capital and interests by granting access to the official foreign exchange market.

Norway

Norway

There are no restrictions on payments made to foreign lenders under a security document or loan agreement. There is no withholding of tax in Norway on interest payable to foreign external lenders. This applies regardless of the lender being resident within the EU, EEA or in any other jurisdiction.

Poland

Poland

There are no restrictions on payments to foreign lenders made under a security document or loan agreement. A borrower may be required to deduct withholding tax in respect of interest which is payable to a foreign lender.

Portugal

Portugal

There are no restrictions to payments made to foreign lenders under security documents or under loan agreements.

Romania

Romania

There are no restrictions on payments to foreign lenders under loan agreements or security documents.

Slovak Republic

Slovak Republic

There are no restrictions on re-payments made to foreign lenders under a security document or loan agreement. However, under the Foreign Exchange Act, re-payments made to foreign lenders under a loan agreement must be notified to the National Bank of Slovakia for statistical purposes.

Spain

Spain

A borrower may be required to deduct withholding tax in respect of interest which is payable to a foreign lender.

Sweden

Sweden

No.

Thailand

Thailand

No.

United Arab Emirates - Abu Dhabi

United Arab Emirates - Abu Dhabi

At present a foreign lender is not restricted on receiving repayments under a security or loan document, other than with respect to the following restrictions imposed by the UAE Central Bank:

  • restrictions relating to anti-money laundering or the funding of terrorist activities; and
  • restrictions on payments being made to certain sanctioned countries or blacklisted entities.

We note that the Central Bank of the UAE may from time to time amend existing restrictions and/or impose additional restrictions.

United Arab Emirates - Dubai

United Arab Emirates - Dubai

At present, a foreign lender is not restricted on receiving repayments under a security or loan document, other than with respect to the following restrictions imposed by the UAE Central Bank:

  • restrictions relating to anti-money laundering (AML) or the funding of terrorist activities (CTF); and
  • restrictions on payments being made to certain sanctioned countries or blacklisted entities.

We also note that the Central Bank of the UAE may from time to time amend existing restrictions and/or impose additional restrictions.

UK - England and Wales UK - England and Wales

UK - England and Wales

There are no restrictions on payments made to foreign lenders under a security document or loan agreement, unless the relevant foreign lender's jurisdiction is subject to any sanctions regime.

A borrower may be required to deduct withholding tax in respect of interest which is payable to a foreign lender depending on the jurisdiction of incorporation of the parties and the application of any relevant double taxation treaties. The allocation of any tax risk is dealt with on a transaction by transaction basis in the facility agreement.

UK - Scotland

UK - Scotland

There are no restrictions on payments made to foreign lenders under a security document or loan agreement.

A borrower may be required to deduct withholding tax in respect of interest which is payable to a foreign lender.

Ukraine

Ukraine

The Ukrainian currency control rules have been significantly softened over the last two year; and the Ukrainian currency market regulator, the National Bank of Ukraine, is highly committed to continue the shift towards more liberal and investor-friendly currency regime.

However, some currency restrictions still apply before adoption of BEPS rules by the Ukrainian Parliament. For example, there are number of limits set out for payment abroad by Ukrainian residents: EUR 200,000 per year for individuals and EUR 2 million per year for legal entities. The National Bank of Ukraine envisages number of exemptions, when the above-defined limits can be overtopped. In particular, such limits do not apply to repayment of cross-border loans to foreign lenders and payments under security documents in respect of cross-border loans. It is worth noting, however, that the limits will apply, if Ukrainian company or individual pays under security given in respect of loans between non-Ukraine lenders and/or borrowers.

Still, the National Bank of Ukraine is authorised to introduce other currency control restrictive measures depending on the status of Ukrainian economy or the Ukrainian banking and financial system.

United States

United States

Depending on the state in which any mortgaged property is located and whether any portion of the mortgaged property is designated for residential use, a foreign lender may need to obtain a license in order to lend and receive repayment due under the loan documents. While lending activity is generally not implicated, in certain circumstances a federal statutory requirement to file a national security clearance process overseen by the US federal government body known as the Committee on Foreign Investment in the United States (CFIUS) may be required.

Zimbabwe

Zimbabwe

According the Exchange Control Act Regulations (109 of 1996), any application for the transfer of funds arising out of the purchase of immovable property by a foreign resident shall be submitted to the Reserve Bank through an authorized dealer for approval. Exchange Control approval must be obtained prior to obtaining such loans. The tenure, repayment periods, security and interest terms etc of such loans must be registered and must be in line with the exchange control guidelines and parameters for external borrowings.