Coming to America? Time to Seek International Tax Advice!

If a foreign company sells property in the US, it will have to pay higher taxes. The company may also have to pay a branch profits tax. If the property is owned through a series of corporations, it can avoid the branch profits tax, but will still have to pay other taxes. When the owner dies, the beneficiary won’t get a step-up in the property’s value. If a non-U.S. citizen wants to own real estate in the U.S., they should set up a special partnership structure to save money on taxes. Before moving to the U.S., they should also make sure their investments are set up in a way that won’t be taxed too much once they become a U.S. resident. This planning can save them a lot of money in the long run. Before a non-U.S. person becomes a permanent resident in the U.S., they should consider setting up a trust to avoid U.S. estate and gift tax on their assets. By putting their assets into a trust before moving to the U.S., they can avoid these taxes for themselves and their future generations. The trust needs to be set up in a specific way to avoid U.S. tax consequences. If it’s done right, the trust will be considered a U.S. trust for tax purposes, which is better for the person and their beneficiaries. In recent years, more and more people are using domestic asset protection trusts in pre-immigration planning. These trusts help non-U.S. residents avoid U.S. estate and gift taxes, and also protect their assets from creditors. However, it’s important to be aware of the tax consequences if the trust has U.S. beneficiaries. Failure to comply with U.S. reporting obligations can result in costly penalties. So, it’s important to be careful when dealing with foreign trusts and U.S. beneficiaries. A nongrantor trust is a separate entity for taxes and is different from a grantor trust, where the person who set up the trust is taxed on the income. If the person who set up the trust is not a U.S. resident, the trust is usually treated as a nongrantor trust, unless the person has specific powers over the trust property. The U.S. tax rules for foreign trusts with U.S. beneficiaries are designed to make sure the trust’s income is taxed properly. If a beneficiary gets money from the trust, they have to pay taxes on the trust’s income. If the trust doesn’t give out its income, it can cause the beneficiary to pay a lot of taxes. There are also rules to prevent people from using the trust to avoid taxes. With the world becoming more connected, it’s important to talk to a tax advisor before doing any international transactions to avoid costly mistakes. Nonresident alien individuals are not U.S. citizens, green card holders, or those who spend a lot of time in the U.S. A U.S. domiciliary is someone who is a U.S. citizen or considered to have their permanent home in the U.S. There are specific tax rules for nonresident individuals who own property in the U.S., including withholding taxes on the sale of U.S. real property interests. The Protecting Americans from Tax Hikes Act of 2015 increased the withholding tax on these sales to 15 percent. Capital gains from selling assets are subject to U.S. federal income tax at rates up to 20 percent. The tax basis of an asset for determining gain or loss upon sale is usually the amount paid. But if you inherit an asset, the tax basis is adjusted to its value at the time of the previous owner’s death. This can reduce the amount of tax you owe when you sell the asset later on. If a non-resident alien sells shares of a foreign corporation, they may have trouble finding a buyer. A domestic corporation would pay corporate tax on the sale, and then when they distribute the money to their shareholders, the shareholders would pay income tax. But if certain conditions are met, foreign shareholders may not have to pay U.S. federal tax on the distribution. The branch profits tax rate can be reduced through certain income tax treaties. Subpart F of the tax code makes certain foreign company income taxable to its U.S. shareholders, even if the company doesn’t give them the money. This applies if the company is mostly owned by U.S. people. The U.S. shareholder has to pay tax on their share of the company’s income, like interest and dividends, even if they don’t actually get it. This type of income is called “subpart F income.” If a U.S. person owns part of a foreign company and the company earns certain types of passive income, the U.S. person has to pay tax on their share of that income. The Tax Law Section of The Florida Bar has submitted a column written by tax law experts.

Source: https://www.floridabar.org/the-florida-bar-journal/coming-to-america-time-to-seek-international-tax-advice/