Real estate funds need to prepare now for the Foreign Account Tax Compliance Act (FATCA), PwC has warned.

The FATCA has created a framework of reporting and withholding obligations to ensure that the US tax authorities are provided with financial information about American investors who invest overseas and to ensure that American taxpayers pay tax in respect of any investments made outside the US.

FATCA applies to 'Foreign Financial Institutions' worldwide from 1 January 2014 and can include investment vehicles such as real estate funds and Real Estate Investment Trusts (REITs).

PwC said that real estate funds face the prospect of suffering withholding tax at 30 per cent on any US income unless they take steps to collect data to identify and report information on US investors to the US government.

The firm noted that shares in REITs may be exempt where they meet certain conditions, for example where shares are 'actively traded', but the REIT is still required to register and report certain information and maintain systems with the data needed to comply with FATCA provisions.

PwC argues that real estate funds and REITs need to act now in order to be prepared for the change, with effective systems and processes that can cope with the reporting and withholding requirements, which are likely to vary between jurisdictions.

Rosalind Rowe, real estate partner at PwC, said: 'FATCA introduces an onerous reporting regime for real estate funds and REITs at a time when changes have been made to the rules in the UK in order to encourage more institutional investment in the REIT sector. FATCA adds cost and complexity.

'Real estate funds and REITs need to ensure that they have the right controls in place to meet their obligations.

'Although the introduction on 1 January 2014 seems a long way off, this is a relatively short period of time for getting to grips with a new set of reporting requirements.'

(Wolters Kluwer Financial Services Europe)