Foreigners relocating to the U.S. sometimes forget to consider the tax implications of moving to the United States. Failure to plan before moving to the U.S. can lead to costly tax results and compliance issues!
U.S. Non-Immigrant (temporary) Visa Holders
(B1, E2, L1, O1 visas, etc.)
Every year countless foreigners are shocked to learn that they became U.S. tax residents because of their days of U.S. presence and therefore must report worldwide sources of income and assets (Undeclared Foreign Accounts? Here are your options). If you do not receive the right advice in time you may discover that failure to correctly report global income and assets can result in severe penalties and interest owed. This costly mistake is avoidable if you properly tax plan before relocating to the U.S.
With advanced planning, foreigners can spend considerable time in the United States on non-immigrant visas and avoid U.S. worldwide taxation and reporting. The key is to ensure the foreigner is classified as a non-U.S. tax resident by not meeting the requirements of the substantial presence test (“SPT”) every year. The SPT is a measure applied over a three year look back period using a weighted average. If the weighted number of days the individual was physically present during the three year period remains below the minimum threshold, the foreigner should remain a non-U.S. tax resident subject to tax only on U.S. source income.
Certain days of U.S. physical presence may be exempt from the calculation. For instance, days you are unable to leave the U.S. due to a medical condition arising while in the U.S are exempt. Another example is a student temporarily present in the U.S. under a F1 student visa, assuming the foreign student remains in compliance with the visa requirements. Even if you are unable to accomplish tax exempt status, a foreign individual can still be re-classified as a non-U.S. income tax resident by utilizing exceptions such as the closer connection exception (“CCE”) or invoking the tie-breaker rules (“TBR”) of a U.S. tax treaty.
If you are in the United States on a non-immigrant visa and cannot avoid U.S. income tax residency treatment than you should consider pre-immigration tax planning strategies to minimize worldwide taxation and obligations.
U.S. Immigrant Visas Holders
(EB1, EB5, etc. – Green Card Holders)
U.S. permanent residents (green card holders) are automatically treated as U.S. income tax residents from the moment they arrive in the United States. Although they cannot avoid U.S. worldwide basis income taxation and reporting, they can take steps to restructure their international (non-U.S.) affairs before arriving to the United States without tax consequences.
The best time to implement tax planning strategies is prior to becoming a U.S. income tax resident. Once the foreign individual becomes a U.S. income tax resident, any steps taken to re-arrange his offshore holdings may trigger U.S. income taxation. In contrast, the U.S. should not tax foreign source income and gains realized offshore while the individual remains a non-U.S. income tax resident.
Although, pre-immigration tax planning generally will maximize a foreigner’s tax savings post U.S. relocation, other tax planning strategies exist to minimize U.S. taxes and compliance after becoming a U.S. income tax resident.
Next month I will discuss the U.S. transfer (gift and estate) tax implication of moving to the U.S., and the benefits of pre-immigration tax planning strategies aimed to minimize or eliminate U.S. transfer taxes.
If you are planning to move to the U.S., the tax attorneys at Barbosa Legal can advise you on custom pre-immigration tax planning strategies aimed to preserve your wealth and minimize U.S. income taxes post U.S. relocation, while ensuring compliance of all U.S. tax filing and reporting obligations.
The Barbosa Legal team has ample experience negotiating, drafting, and enforcing all transaction documents and agreement. They assist with planning for future tax implications, creating enforceable transaction contracts, explaining economic conditions and currencies, and the ability to register businesses in multiple countries.
The attorneys at Barbosa Legal are able to offer comprehensive legal services to a diverse group of corporations and individuals, ranging from start-up ventures to established international companies. The advice is personalized and allows our clients to carry out business enterprises, obtain financing, maintain legal status, and create a competitive advantage.
Contact Us at Barbosa Legal to discuss the best alternatives for your particular situation.