AT THE RIGHT TIME www. Ibcusa1.com 100 SE 2 nd STREET MIAMI, FL (305)

Executive Summary IBC’s 25 years’ real estate experience Continuing growth in Florida Florida Real Estate trend Investment opportunities Case studies: Bank Of America Tower

IBC’s 25 years of experience Established in 1984 in Florida Global investment USA office Russia office Luxembourg office Investment principal Focusing on locating excellent real estate investment opportunities at the right price

Continuing growth in Florida Single Home price index Source: US Bureau of Economic Analysis From 2000 to % From 2000 to %

Investment highlights Discounted prices after the crisis Currency diversification Low mortgage rates Continuing population growth Tourism:84,000,000 visitors annually Healthy Business Climate: Low regulations, low taxes & “right to work” law (few unions). Very pro-international climate, dynamic economy Agriculture:1 st citrus state, 2 nd cattle state Banking: 3 rd largest US Center Mining: $1.92 Bln/year industrial mineral production, fifth in the USA Trade: 5 deep water ports & 30+ free trade zones High profile and well-educated population; Many Europeans, wealthy economy

Case studies: Bank of America Tower Price fluctuations in Florida due to similar economical conditions in the past have caused prudent investors to make substantial profits!

Foreign Investment in New York City vs. Florida Real Estate (Generally) Three types of Manhattan Real Estate Single-Family / Residential Town Homes least commonly available in New York City Co-operatives comprise 75-80% of the available units in New York City Condominiums Two types of Florida Real Estate Single-Family / Residential Town Homes most commonly available in Florida Condominiums / Homeowner’s Associations NOTE: Investors will make an analysis as to the more attractive investment and takes personal preferences and the like into consideration. Put generally, from a cost and tax perspective, investments in Florida going forward are likelier to produce better long-run returns.

What is a Co-operative (Co-op) ? Co-ops are on average the cheapest and most common form of real property available for purchase in New York City. However, there are substantial obstacles for foreign buyers interested in buying Co-ops: 1. Buyer must be approved by Co-op board. Co-ops have almost absolute discretion into who they do or do not allow to purchase in their building. Additionally, Co- op boards do not have to disclose reasons for denial. 1. This could be difficult for foreign buyers as many co-ops require New York employment, prior year U.S. tax returns, and an excellent credit history in the U.S. 2. Extensive regulations which may make Co-op ownership unattractive for owners. 1. E.g. Restrictions on rentals and sub-leases of units, guests, noise, etc. 3. Co-op approval process also limits the pool of possible buyers upon possible sale of unit. 4. Co-op boards usually impose additional “flip taxes” on the resale of the co-op to discourage speculators (and investors who do not plan on living the co-op on a permanent basis). 5. Although the purchase price is usually 10-20% lower than that of condominiums, the monthly maintenance charges are usually higher.

Monthly Expenses in a Co-operative Co-ops are different from other forms of ownership in that the owner does not own an interest in property but rather shares in the co-operative corporation. The shareholder’s ownership interest is determined by the size of the unit. Shareholders (owners) pay a monthly maintenance fee which includes the following: Utilities Building maintenance / Groundskeeping Real Estate taxes Pro-rata share of the corporation’s mortgage indebtedness. Shareholders are able to take deductions on their income taxes for their pro-rata share of the corporation’s mortgage interest expense and real estate taxes.

What is a Condominium (Condo) ? Condos are multiple family buildings where one owns an apartment and a corresponding share of common areas. Unlike co-ops there are minimal restrictions, and generally are welcoming of foreign investors. Condos are managed by a Board of Directors, usually composed of residents of the building. Condos are usually higher priced than Co-ops due to the ease of purchase and sale by investor-owners.

Monthly Expenses in a Condominium Condo owners also pay a maintenance fee which covers expenses related to the upkeep of the common areas. Condo owners are usually responsible for the following property expenses in addition to the monthly maintenance fee: Mortgage expenses on the unit. Real Estate property taxes. Utilities (usually electricity).

Cost of Ownership of NYC Real Estate Most common charges: Mortgage Payment (if applicable) Monthly Maintenance Fees Annual New York City Real Estate Property Taxes. Property Taxes in New York City Four tier class system based on classification/use of property. Tax rates range from 10 – 17% based on a percentage of market value depending on class.

Property Tax Rates in New York City TIERCLASS 1CLASS 2CLASS 3CLASS 4 TAX RATE17.088% Applied to 6% of market value % Applied to 45% of market value % Applied to 45% of market value % Applied to 45% of market value CLASSIFICATION CRITERIA Class 1 : Most single family residences, Condos of three stories or less, vacant land zoned for residential use. Class 2: all other primarily residential properties not included in Class 1, including Co-ops. Class 3: Real Estate of utility corporations and special franchise properties, excluding land and certain buildings. Class 4: All commercial real estate. Hotels, stores, warehouses, and any vacant land not classified as Class 1.

Listing of Available New York City Property Tax Exemptions STAR –New York State School Tax Relief Program (Basic & Enhanced) Senior Citizen Homeowners’ Exemption (SCHE) Disabled Homeowners’ Exemption (DHE) Veteran’s Exemption Military Request for Relief Cooperative and Condominium Tax Abatement Clergy Exemption Note: for most of these exemptions to apply the owner must use the property as its primary residence and not as an investment property.

Closing Fees on Real Estate Purchases (New York City) SELLERBUYER Broker’s Commission : 6% Seller’s Attorney’s Fees: open Applicable Processing Fees : $500 + NYC Transfer Taxes Residential Up to $500K = 1% over $500K = 1.425% Commercial Up to $500K = 1.425% over $500K = 2.625% Deed Transfers $ NY State Transfer Tax = $4 / $1,000 of price NYS Equalization Fee = $75 Bank Payoff Fee = $ UCC-3 Filing Fee = $100 Condominium / Co-op charges – depends on building. Note: For condominiums in new developments, the Purchaser will pay costs normally paid by the Seller. These include Seller attorney fees as well as NY and NYC Transfer Taxes. Buyer’s Attorney’s Fees: open Application/Processing / Appraisal / Municipal Search Fees = $1000 – 3000 Bank Attorney’s Fees Recording Fees = $ Tax Escrow = 2-6 months of property taxes Title Insurance Fees Fee Title = $450/$100K + 15% on 1M or more. Mortgage Title = $130 / $100K mortgage amount Mansion Tax = 1% if greater than $1MM NYC Mortgage Tax Less than 500K = 1.80% More than 500K (residential) 1.925% More than 500K (all others) = 2.80% Misc. condo charges - depends on bldg. Pro rated Real Estate Taxes and Condo maintenance for month of closing

Cost of Ownership of Florida Real Estate Most common charges: Mortgage Payment (if applicable) Monthly Maintenance Fees (if owning a condominium) Annual County Real Estate Property Taxes. Property Taxes in Florida Based on a “millage rate” calculation based on the “assessed value” which adjusts yearly subject to any applicable assessment limitations and/or exemptions. “Millage rates” vary depending on the county. Selected rates (2009) Miami-Dade County : mills Broward County : mills Palm Beach County: mills Collier County (Naples): mills Hillsborough (Tampa): mills

Property Tax Rates in Florida Formula for Determining Florida Property Tax Just Value (market value) – Assessment Limitations (e.g. Save Our Homes) = “Assessed Value” Assessed Value – Applicable Exemptions (e.g. Homestead) = “Taxable Value” Taxable Value X Millage Rate = Total Tax Liability Example: Assume Homestead A has a market value of $400,000, an accumulated $100,000 in Save Our Homes protections, a Homestead Exemption of $50,000, and the millage is 5 mills: $400,000 – $100,000 = $300,000 $300,000 – $50,000 = $250,000 $250,000 X.005 = $1,250 (Total Property Taxes) NOTE: Some local Florida cities or villages may have additional property taxes that are beyond the scope of this presentation.

Listing of Available Florida Property Tax Exemptions Homestead Exemption Up to $50,000 $500 Widow's and Widower's Exemption $500 Disability Exemption $5,000 Disability Exemption for Ex-Service Member $500 Exemption for Blind Persons Service Connected Total and Permanent Disability Exemption Exemption for Totally and Permanently Disabled Persons Additional Homestead Exemption for Persons 65 and Older Homestead Property Tax Discount for Veterans Age 65 and Older with a Combat Related Disability Homestead Tax Deferral Installment Payment of Property Taxes Personal Property Note: for most of these exemptions to apply the owner must use the property as its primary residence and not as an investment property.

Closing Fees on Real Estate Purchases (Florida) SELLERBUYER Broker’s Commission : varies 3-6% Seller’s Attorney’s Fees: open Title Abstract Search: $195 Florida Recording Fees Document Recording = $10/ first page ; $8.50each additional page. Document Stamp Tax Miami – Dade =.60% ( 60 mills) Other FL counties =.70% (70 mills) Lien Search = $ Bank Payoff Fee = $ Courier / Wire/ Settlement Fees = $500 Condominium / Co-op charges – depends on building. Note: For condominiums in new developments, the Purchaser may pay costs normally paid by the Seller. These include Seller attorney fees as well as Florida transfer taxes. Buyer’s Attorney’s Fees: open Title Binder - $195 Courier / Wire/ Post- Closing Admin Fees = $300 Florida Recording Fees Document Recording = $10/ first page ; $8.50 each additional page. Mortgage Document Stamps =.35% x amount of mortgage amount. Millage rate depends on county. (35mils is the Dade County Rate.) Intangible Tax =.20% ( 20 mills) based on loan amount. Tax Escrow = 2-6 months of property taxes Title Insurance Fees TBD – based on promulgated rate which is $5.75/ $1,000 of sale price. Misc. condo charges - depends on bldg. Pro rated Real Estate Taxes and Condo maintenance for month of closing

Tax Consequences on Sale of United States Real Property The United States has two levels of taxation, one at the federal level and one at the State and local level. Local real property taxes (as outlined in the earlier slides) are paid at the state and local level. However, there are federal tax consequences for owners of real property located in the United States upon ultimate sale or disposition. The federal tax consequences also depend on the immigration / residency status of the owner. There are a different set of tax rules and rates that are available to the owner depending on whether he/she is considered a resident of the United States for tax purposes. Finally, tax rates also depend upon the form of ownership, and therefore, it is advantageous for the foreign purchaser of U.S. real estate to engage in tax planning in order to minimize the non-resident’s U.S. tax burden and reporting exposure.

United States Taxation of Foreign Investment in United States Real Estate Taxation as a non-resident alien is based on three distinct concepts: 1. The nature and source of the taxpayers' income 2. The taxpayers' activities in the United States 3. The relationship between its income and its U.S. activities, i.e. whether its income is "effectively connected" with a U.S. trade or business. In broad outline, foreign persons are taxed at 1) flat rate of 30% percent on the gross amount of their U.S. source passive investment (rental) income, known as "fixed or determinable" income and 2) at full graduated rates as those levied on U.S. residents on net business profits known as "income effectively connected with the conduct of trade or business in the United States." detailed examination of these issues is beyond the scope of this presentation but the following chart should give a useful explanation:

United States Non-Resident Alien Taxation Scheme Category of Income Effectively Connected w/ U.S. Trade or Business Not Effectively Connected w/ U.S. Trade or Business Capital GainsNet Income taxed at US Individual Income Tax Rates No US Tax unless the individual is in the US for 183 days or is “deemed” a U.S. resident. Fixed or Determinable Income (Rental Income) Net Income taxed at US Individual Income Tax Rates Gross Income Taxed at Flat 30% rate. U.S. Real Property Gains Net Income taxed at US Individual Income Tax Rates Treated as Effectively Connected Income Other IncomeNet Income taxed at US Individual Income Tax Rates Treated as Effectively Connected Income

United States Taxation Scheme for Foreign Corporations Category of Income Effectively Connected w/ U.S. Trade or Business Not Effectively Connected w/ U.S. Trade or Business Capital GainsNet Income taxed at US Corporate Income Tax Rates No U.S. Tax. Fixed or Determinable Income (Rental Income) Net Income taxed at US Corporate Income Tax Rates Gross Income Taxed at Flat 30% rate. U.S. Real Property Gains Net Income taxed at US Corporate Income Tax Rates Treated as Effectively Connected Income Other IncomeNet Income taxed at US Corporate Income Tax Rates Treated as Effectively Connected Income

Tax Treatment of Gains and Losses of Foreign Taxpayers on Disposition of U.S. Real Property Interests (“USRPI”) Gains and losses of a USRPI are treated as “effectively connected” with a U.S. trade or business. Under I.R.C. § 897 these gains or losses are taxed at regular U.S. rates as if the taxpayer were a U.S. resident. USRPI also includes interests in any U.S. corporation that qualifies as a U.S. Real Property Holding Corporation (USRPHC) at any time during the previous five years while owned by a foreign person. See I.R.C. § 897(c). USRPHC is defined by the degree of concentration of the entity’s holding of U.S. real property. See I.R.C. § 897(c)(2). More than 50% of the fair market value of its combined holdings of real property worldwide and assets used in the conduct of a trade or business. Note: A Foreign corporation, even if loaded with U.S. real property (and hence a USRPHC) is NOT a USRPI. Sales of the foreign corporation’s stock are not subject to U.S. tax. Regardless, the foreign corporation will eventually be taxed upon the actual disposition of the property. Therefore use of a foreign corporation to hold U.S. real estate offers a deferral of U.S. taxation on the appreciation of the property. (i.e. one can transfer the shares tax free indefinitely– but will be taxed under I.R.C. §897(d) upon final sale of the property.)

Other Taxation Issues of Interest to Non Resident Aliens and Corporations holding U.S. Real Property FIRPTA - Withholding Regime The disposition of a U.S. real property interest by a foreign person (the transferor or seller) is subject to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) income tax withholding. Persons purchasing U.S. real property interests (transferee or buyer) from foreign persons, certain buyer’s agents, and settlement officers are required to withhold ten percent (10%) of the amount realized (gross amount).

FIRPTA – Exceptions to the Withholding Requirement Withholding can be avoided if the Buyer receives from the Seller an affidavit that the transferor is not a foreign person, or if a U.S. corporation, is not U.S. Real Property Holding Corporation (USRPHC). No withholding if shares of the U.S. corporation are traded on an established securities market. If the transaction meets any of the special rules in I.R.C. section 1445(e) on distribution of U.S. real property by U.S. corporations, partnerships or trusts.

Availability of Tax Planning Services for Foreign Investors in U.S. Real Estate As one can see, the purchase of U.S. real property by a foreign investor is a complicated process. Not only does the investor have to consider the location of the investment, but also in what manner to own the investment. Should it be an as individual ? A corporation ? A partnership ? A trust ? A combination of one or more of these forms? The differences in tax burden between the various forms can be staggering. This is a complicated undertaking. The form in which an investor holds an investment, if not properly counseled, can entail a variety of tax reporting and tax payment consequences which the foreign investor may not have anticipated. Therefore, it is imperative that the foreign investor consult with qualified U.S. tax and legal advisors to best tailor an individualized solution to their U.S. investment needs that takes into account all the investor’s business and personal needs both from the U.S. and home country perspective.

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