Last updated: Dec 01, 2022
Please note this overview is for informational purposes only, AIIA can refer you to skilled Certified Public Accountants (CPAs) and tax attorneys in the United States that have a deep understanding of the issues faced by EB-5 investors and can expertly guide you through the tax planning process to ensure you are prepared for your individual situation.
United States (U.S.) tax requirements for EB-5 investors are complex, given investors in the program are required to make a large investment in the U.S. economy, change residence status, and eventually have their investment repaid to them. All U.S. residents must file annual tax returns in accordance with the standards set by the IRS, who strictly monitors compliance. For EB-5 investors who may already be living in the U.S. on a nonimmigrant visa, tax liability may apply to estate and income even before being granted conditional permanent residency in the U.S.
It is important that immigrants complete their tax planning and preparation before entering the U.S. Educating yourself on the American tax laws, as well as the impact on your different income streams and existing investments on your tax liability is most effective when assisted by a tax professional. Investors can adequately prepare themselves to consult with a professional by understanding the basics of the U.S. tax code prior to their first consultation.
Determining your tax status
Foreign nationals immigrating to the U.S. are subject to different taxes according to their tax status with the Internal Revenue Service (IRS). An immigrant’s tax status is determined based on a foreign national’s immigration and residence status as well as the beginning of residency in the U.S. and type of visa you enter the U.S. with. Generally, the IRS divides immigrants into two categories: U.S. Tax Residents and Non-Residents. This can be confused with Non-Resident Alien Status and Resident Alien Status, but the tax residence designation is entirely different. This designation allows the IRS to levy taxes on foreign nationals outside the U.S. with income connected to the U.S., as well as….. <Enter Password to Read More>
Estate Tax Status
- Residents: Resident Alien (RA) status for estate taxes is determined by the date which the immigrant announces their intent to remain in the U.S. This date is determined with evidence from….. <Enter Password to Read More>
Measuring Substantial Presence
Measuring substantial presence can be complex and confusing….. <Enter Password to Read More>
U.S. estate tax is a one-time tax levied on all assets owned by an individual at their time of death. Any property, personal assets and commodities, interest, and any other tangible or intangible assets are included in an individual’s estate, and posthumously taxed according to their market value. An individual’s “gross estate” is built up of the entirety of their tangible and intangible assets. There are many deductions that an individual can add onto their estate, including debts and mortgages, estate administration, property given to surviving spouses, and in certain cases….. <Enter Password to Read More>
Owning Assets in the U.S.
There are various ways an investor can own U.S. assets, and each has benefits and drawbacks. However, it is important to know exactly your relationship to any assets you may own, directly or indirectly. Assets can constitute cash, bank account holdings, bonds and investments, retirement plans, stocks, property or land, and valuable personal property such as vehicles, furnishings, jewelry, and precious metals.
In a corporate context, assets can also include inventory, patents and any other intellectual property owned by the company. Additionally….. <Enter Password to Read More>
Gifting tangible assets held inside U.S. territory may be subject to gift taxes. This means that any income generated from property, dividends from U.S. corporations, or any other form of income gifted under the amount of $15,000 per year is subject to the gift tax….. <Enter Password to Read More>
Categorizing your income
Generally, the IRS divides income into two distinct categories. The first is income that is considered “Fixed, Determinable, Annual or Periodical,” also known as FDAP. This type of income is normally considered any type of passive investment income, including any capital gains….. <Enter Password to Read More>
Distinguishing between FDAP and ECI
ECI and FDAP may apply differently to multiple kinds of income. This means that some forms of income may be considered either ECI or FDAP for income tax purposes, but not necessarily the same for estate tax purposes. When determining your tax structure, a foreign national must learn how the IRS distinguishes between different types of income.
Capital Gains, or the profit generated from buying and selling assets like stocks or real estate, is generally excluded from U.S. tax.….. <Enter Password to Read More>
Decreasing future tax liability as a Non-Tax Resident
There are many ways in which NRAs can navigate tax filing by reducing their tax obligations, primarily by minimizing capital gains and real estate taxes which could be imposed by the IRS. One strategy an investor may use is recognizing gains earned by assets in their portfolio and offloading these gains for their full value to family members or other beneficiaries.
Investors should also consider that….. <Enter Password to Read More>
Estate Tax Structures for Real Estate Ownership
There are three basic tax structures NRA investors should know when investing in U.S. real estate. Each allows the individual to adjust their estate tax liability through minimizing income and capital gains.
- Individual ownership or pass-through entity ownership is regarded as the best structure for income tax purposes, as it taxes capital gains at 20% without the additional 3.8% net investment income tax. This type of structure requires….. <Enter Password to Read More>
Tax planning for Tax Residents
Due to the contentious and immediate nature of tax planning in the United States, EB-5 investors should begin planning for tax liabilities they will face before they enter the United States.
- Income Tax: RAs are taxed at a 30% flat rate on their income which is considered “effectively connected” to a U.S. trade or business. This amount is withheld and sent as a remittance to the U.S. treasury, and the investor will receive the remaining 70% of income from the U.S. Source. While this 30% tax applies to nearly all U.S. income, investors are generally not taxed on their capital gains.
- Estate Tax: This tax is levied at 40% on all U.S. property, shares, bonds, or interest owned by a RA at their time of death, which is the same tax required of resident aliens and citizens. There is an exemption for up to $60,000 in property value for certain residents coming from countries without a tax treaty. RAs are subject also to gift taxes on tangible U.S. property.
Upon approval of an investor’s I-526 and receiving conditional permanent residency, the investor is immediately considered….. <Enter Password to Read More>
Post-immigration Tax Planning
After immigrating to the U.S, investors who are eligible to receive repayments from their investment issuer are liable for withholding taxes until conditional permanent residency is approved through Form I-485 or a successful consular interview. Once investors formally become “conditional permanent residents”, they are subject to….. <Enter Password to Read More>
AIIA can refer you to skilled Certified Public Accountants (CPAs) and tax attorneys in the United States that have a deep understanding of the issues faced by EB-5 investors and can expertly guide you through the tax planning process to ensure you are prepared.