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VOICEOVER:
This podcast channel is about you – successful international entrepreneurs- successful expats- successful investors, sponsored by HTJ.tax.
DERREN JOSEPH:
Okay, good morning. Good day, good afternoon. Depending on what part of the world you are in. I’m just going to turn it off. Okay. Thank you for joining us, HTJ.tax. Thank you, Christine and the management team, and AARO for making this happen. We really appreciate the opportunity to speak to you guys. So, without further ado, I’m going to jump in. Now, this is being recorded. So if you do not want your image to be captured in the recording and you’re on zoom, all you need to do is keep your cameras switched off.
So, just a heads up with that. Okay. So, I will now share my screen and for those that could not join or those images later, or whatever, if you have colleagues or friends that were asking and couldn’t make it because it’s too early, too late to whatever, please let them know that Kathleen will be posting a copy of this video, this recording on the ARO website. So, please contact her directly if you want to get access to that. So, okay, just going to pull this down and I’m going to share, oops, hey, thank you for joining us.
HTJ.tax, we do these every week, actually. So if you have a look at our website, HTJ.tax. We do live streams that every week we enjoy the Q and A’s. We enjoy the interaction and hearing firsthand, the challenges and, you know, the key questions and concerns that people have regardless of when the world you may be. So our website is HTJ.tax. We used the brand name Advanced American Tax because that works well with Google search. And Asia, we’re part of Moores Rowland Tax Consultants in Asia. We have about 30 offices in 12 or 13 countries as far north in Beijing all the way down to Sydney and Melbourne.
And we through our affiliate network, we also cover most of Europe as well as parts of Latin America and South Africa as well. So that’s a little bit about us. I’m actually based in Singapore, I’ve been based in Singapore since 2013. So that’s, that’s where I am, but I mean, pre-COVID, I would travel a lot, but not as much since the hope crisis that’s facing us. This is me. So I’m US quantified. So, I do have some authority to talk about what I do talk about. I also published three books, which are available on Amazon, but more importantly, and just want to highlight this is a disclaimer, right?
There’s no way that anyone can give advice based on just a few minutes interaction on social media, right? So nothing has, can, should be construed as advice. Nothing here should be construed as encouraging you to pay less than your fair share of taxes and any jurisdictions in which you’re exposed. You can consider, you can consider this entertainment or education, but this is not advice. What I’m hoping that you would walk away with. So your takeaway or what are the key concepts and principles that you need to bear in mind as you engage with your preferred tax team. And yeah, so that’s really the takeaway one shouldn’t expect at the end of an hour to be able to comprehensively do one’s own returns, right?
So this is not an instructional video. So this is how I keep myself from being sued. Fantastic. So, so just five sections, because I wanted to leave time at the end for Q and A some, some of you did submit questions in advance. Thank you for that. For those that have not, if you’re on zoom, just look at the chatbox below and you can type your questions. And then at the end, I’ll get into that. If you’re on Facebook or one of the other platforms that this is being live-streamed on, you can type into the box below and I’ll have a look once we’ve finished the bit of a light show. Alright? So without further ado, let’s jump in.
So they had evolved US tax team, the guy who’s actually running the team that does the returns. This is Ronnie looking so chilled and relaxed. He’s ex JP Morgan, which is a relatively well-known US bank. These are the basics. So, I want to start with basics, right? These are your basic responsibilities as a US person residing outside of the US or with some sort of foreign exposure. The first thing is, remember your bank accounts, right? So there’s something called a FBARS, the foreign bank account report or otherwise known as FinCEN 114, it’s not new. I think it came from 1970.
The bank secrecy act has been around for a long time. What has happened is because of the Patriot Act. There’s a lot more teeth in it, in the legislation. So if it is that you do not comply, the penalties can be not just civil but criminal as well. So you can be charged up to 50% of the unreported balance. So an example I like to give is in Florida. So we have an office in Florida. So I talked about Florida. There was a dentist who happened to have just about a million dollars in a trust in Switzerland. And he, for whatever reason, he forgot that he had this money in this account.
He didn’t report it to the IRS. So the IRS held that she did not report it for three years. And they went to the maximum, which is 50% of the unreported balance. So his penalty was $1.5 million in an account with $1 million in it. So it was settled out of court. I don’t know how much he eventually paid, but that was what was thrown at him, what you realize when it comes to international tax. And I’m always, you know, I was making a big deal about communicating this international tax for the internal revenue service is not necessarily about revenue collection. It’s about data, big data.
Data is gold. Data is the most precious commodity right now. So for forms like this, and we know that this is their priority. Why? Because look at the penalties, the penalties that they would throw at you for not paying your taxes are relatively small compared to the penalties that they would throw it to you for not declaring foreign investments, including foreign accounts, foreign pension funds, phone insurance policies that may be wrapped up with, you know, they may be wrapped up as a pension or insurance, but they’re viewed as being an investment account. So that those disclosures, that’s what they want to know. They want to know what it is you’re doing outside.
Okay. So please pay attention. Declare your bank accounts, depending on how much your maximum aggregate balance would be. And that’s another misconception that is not just the balance in one account, but your maximum aggregate balance across all your financial accounts, all your bank accounts, it needs to be declared and not just on the FBARS, but potentially on a new, relatively new form called 8938 or FATCA form. It kind of mirrors what’s on the app bars, but it goes so FinCEN 114 it’s collected by the IRS, but it doesn’t actually go to the IRS. It goes to another team and treasury called the financial crimes enforcement network.So the 8938, but to some extent, mirrors what’s on the AirPods that goes to the IRS. So, you know, you need to be speaking to your tax team about that.
Next, E, estimated taxes, because you want to do your best. He estimated when you back in the US, maybe you got paid on a W2. So when you got your wages, like every two weeks or every month, it was subject to withholding. So, IRS would get them money as you earn it. But you’re outside of the US so depending on your situation, you may want to pay attention and speak to your tax team about estimated tax responsibilities. Because if taxes are due, there doesn’t want to wait until April 15, 2022 to get paid what they were owed on 2021 income, right?They wouldn’t get it along the way they don’t want to wait. So the very least you should be looking at four quarterly payments due in April, June, September, and January. So failure to do that triggers a form 2210.
So, there’s an underpayment penalty, which depending on the quantum can leave you a bit of a stink. So if you don’t want to pay that penalty, speak to your tax team, SME to taxes, you want to do your best S stands for state. So of course, you have, I mean, most people focus on federal, but depending on what state you are deemed to be domiciled in the state can be a big issue as well, because depending on your state, most states, domiciles states, to the extent that even though you may have left the state physically, so you physically reside outside of the state and you’re outside of the US, you may actually, under some circumstances have state tax responsibilities.
So what we, especially, if you come from, I mean, really sticky state would be like Virginia, also California. So what we coach our clients on would be, Hey, pay attention to this. It’s where you, you know, with state where you last residing and what you deem to be domiciled in the US what state, right? And perhaps you want to think about switching domicile to one of those eight states that do not have any income tax in almost popularly, Florida, Texas, Nevada, you know, switching to one of those states, you know, you’re looking at changing your driver’s license, your voter registration. So the point is that we’ve seen so many clients who at some point in time returned to live in the US and as part of their welcome back package, they got a huge bill from the state than they thought that they had no connection to.
And it is, yeah, it is not just sending conveniences can be really scary. So be proactive, speak to your tax team, get your state taxes, right? Transfer taxes, again, something that many forget about that, you know, gift and estate taxes right now, you know, people were quite conscious of estate planning and on mortality and stuff like that. So estate planning is important, but gift taxes, gift taxes. So if it is that you, you living outside of the U S you get into business or personal relationships with people who may not be a US tax resonance American. So if it is you have a non-American boyfriend, girlfriend, a partner, husband, wife, whatever the case may be, bear in mind that they transfer of assets back and forth may trigger some sort of disclosure, at least disclosure to the IRS, and depending on the amount and may even trigger attacks depending.
Right? So the failure for not reporting a gift could be up to 30% of the value of the gift. So it’s, for most people, there is no tax liabilities, simply reporting requirements. There’s no downside. Just make sure that they are aware that you have given or received gifts and have a conversation about whether in disclosure is required. I started with the UK has put in table of contents, really a shared. So in the UK key team members, and you said, the UK side will be Weldon X big four accountant, and Mikeal who is a barrister.
So now Im in the UK, it’s not like the US where everyone is an attorney, right in the UK and the other common law jurisdictions. They separate the barrister from the solicitor. So he’s a barrister. So not just for the UK, but also in some of the offshore Caribbean jurisdictions, because for some of our clients, some of sort of offshore structuring is something that can help optimize their tax position. Right? So as I go into these jurisdictions, you know, obviously not in detail, but just kind of give a highlights. What I’m hoping to do is, I mean, when you Google in two minutes, you’ll find lots of people who can plug figures into return, so that that’s easy, right?
Take your numbers, plug them into return. So we’re not form fillers. We are tax advisors. So we work with people who may be considered high net worth, or at least people who are more sophisticated or more challenging tax situations. And we help them tax optimize and tax plan across the various jurisdictions in which to expose. Right. So what I want to do is throw some nuggets that you guys, so these are some really cool ways of tax planning and optimizing that you would want to take up, you know, have a conversation. Would you prefer a tax team about, so let’s start with the UK, obviously Europe, we know in Europe, in general, for those who are based in Europe.
And I think most of you are, Europe is not synonymous with low taxes, right? In general, Europe is probably one of the higher tax jurisdictions in the entire world, definitely higher taxes in the US so they, high saturated UK would be 45% versus 37 as an individual in the US. But the point is that you’re going to hit that 45%. We faster in the UK, then you would hit 37 in the US. So it’s just the jump between the steps in the tax ladder, quite aggressive in Europe. But you guys should know that if you residential Europe anyway, so bear in mind, the UK kind of created the concept of a trust.
You know, the law goes back to the crusades when, you know, people of means, so members of our stock C would, you know, become Knights and had to the defend Christiandom. So obviously they left their, wealth behind and they created the idea of trust, or I’m leaving my assets in your trust. So whoever the trusted individual and trusted entity was while they go off and fight. And so that when they returned, they wouldn’t be like Robin hood, right. Who found that his situation was that he was swindled and he had nothing left. So, the trust law in the UK, England, and Wales, in particular, has a really long and rich heritage.
There’s not just a lot of code or legislation around it, but there’s a rich body of case law that is also reflected elsewhere in, in the English-speaking world or in the other common law jurisdictions in the world. And one of the cool things, or one of the great things about being tax resident in the UK is that you do have the option of being taxed on a remittance basis. In other words, the income that you earn and that earned, but the income that’s attributable to you, I’m going to be careful with my words. They can come to maybe attributable to you can be excluded from UK taxes, if you qualify and you elect to be taxed on the remittance basis.
So, but if that income, so once it stays outside of the UK, whether it be in an offshore jurisdiction of back in the US as long as it does not come into the UK. And again, lots of anti-avoidance rules have been applied now. So it’s not just about coming in because you can’t take a loan against it or whatever, but once you don’t enjoy any of the benefits of it, it won’t be taxable. So, you know, that’s a huge planning opportunity. And of course, IHT or inheritance tax planning, like in the US you have a state taxes that are levied on the estate of the person who passes in the UK. There’s an inheritance tax as well. That’s leveraged on the estate of the person who’s passed away.
So the great planning tools to mitigate in the UK as there are in the us as well. So it revolves around the concept of domiciles and it’s different. So I know those who live in civil, more jurisdictions, France, and elsewhere on the continent. Domicile means something slightly different. Domiciled tends to mean you place a habitual abode and the UK. And this is for, I’m speaking specifically about England and Wales in particular, we will get Q and A at the end. So please, yes, questions at the end, right? So domiciles is quite a sophisticated concept, but broadly it looks at your permanent home.
And to just to cut to the chase, if it is that you are deemed to be domicile outside of the UK, huge opportunity for tax optimization and tax savings. So talk to you prefer tax team about that. So you want to think about trust, and you want to think about domicile planning, and this works well, particularly if you have not yet moved to the UK. So the more planning you can do in advance, not just the UK, but in any jurisdiction, pre-migration planning is super, super important. Don’t wait until you’re in neck-deep to start thinking about planning. You’re already there. You need to think about planning before you get there.
So Spain and Portugal. So we have Ricky in Barcelona and Augusto in Lisbon. So these are leads when it comes to when we talk about Spain and Portugal opportunities, it’s amazing that we get so many clients that come to us after having dealt with that tax team that just does the US only when you’re in a high tax jurisdiction, you have to optimize across borders. So both tax teams not just have need to be able to speak to each other, but they need to work in tandem. They need to work in, you know, in lockstep with each other, because what may be good for one jurisdiction may not be good for the other. So what may be wonderful from a US point of view, not just from Spain and Portugal or European perspective and vice versa as well.
So key tax planning opportunities. And it’s been in Portugal just going to run through this and HR are not habitual residents. So it’s a variant of the res non dom that we looked at in the UK, where to some extent, a lot of your income outside of, in this case, Portugal can be excluded from Portugal taxes for up to 10 years, huge, a huge win, but it’s very, very nuanced. It’s not as cut and dry as the UK and Ireland where, almost everything outside investment income-wise, if it’s earned within the jurisdiction, obviously be taxable, but not all of your foreign income is excluded, right?
Because pensions are taxed at 10%. Securities income is taxed at 28%. So some planning is needed. So definitely, definitely if you’re there, or if you thinking of going there, whatever you want to eat, you’ll be probably aware of it if you’re there, but there are tools, there are planning tools that can reduce this. So NHR in combination with some clues, from some intelligence structures can work in your favor. Of course, what happens after 10 years when the NHR is up? Well, that’s, that’s, that’s another conversation for another time in Spain, you have the backroom law, which again, works like the other two jurisdictions.
We’ve spoken about Portugal, and you can Ireland where you can exclude income that arises outside of Spain. It’s much, it’s a, in a way it’s simpler than Portugal. And that, you know, then not that many carve-outs, but to set it up requires more effort than it does in Portugal. So in Portugal, they charge us in election and Spain, you need to set up a company and it’s so, but once you get over that hurdle, you get to go to Spain and paint. Spain is wonderful, but it only lasts for five years. And then after then, after that, you ended the full way to the Spain Spanish tax authorities, which are one of the more aggressive ones in Europe.
And if you live in Spain, you know exactly what I’m talking about, which returned the do first, typically with the way the tax treaties work in Spain and Portugal, and you are, that’s where you reside. You’re gonna have to do Spain and Portugal taxes for it. I mean, it’s so many people, you know, socially people talk to me. And so which tax return do you do first? And then they say, well, yeah, we always do a US return for us. And we just handed to Portugal, tax advisers or Spain and Spanish tax advisors, and then take it from there. And I didn’t say anything, but the bottom line is, Hey, you are being double taxed, simple as that, because the way the double tax treaty works, the US-Spain double tax treaty, and the US-Portugal double tax really work.
You need to do the local one first and recategorize the income. So you need to do some gymnastics on the formula 16 to get the credits on the US return. So again, just proves the point. You need to, whatever team you choose to work with, make sure that they’re doing both because you need to keep both within sight in your perspective to tax optimize across both jurisdictions. All right. So I will jump to the next one. So let’s head to Asia, we’ll come back to Europe, to Asia and talk about Asia for a while. So he usually doesn’t feel left out. So Singapore, Hong Kong, Malaysia, many of our clients are, we have Boon Yip in Singapore.
We have Lee in Hong Kong and Ravi in Kuala Lumpur in Malaysia. So again, the advantage of working with the US tax teams with local knowledge, because so many clients, so many us, like they base in the US tax teams, they don’t understand like how the central Providence fund works in Singapore, the MPF in Hong Kong, the EPF and Malaysia, and it just creates problems. Or if you’re in Australia, the superannuation plan and stuff like that. So the local pension and investment structures requires special treatment and disclosure on your US tax forms.
Just keep that in mind, CFC laws are controlled foreign Corp laws. So we have lots of clients that are investors that are business owners that are entrepreneurs when you’re in a lower tax jurisdiction, those CFC rules really do check in. And the reason why is that Europe obviously being high tax, you trying to solve for Europe to a large extent in your mind, because that’s the higher tax jurisdiction. So when you do any planning and stuff, it’s all about Europe, Europe, Europe, when you’re in Asia, it’s kind of the opposite. These jurisdictions, at least they’re relatively low tax. So you kind of put your brainpower towards dealing with the US and the US has control foreign corporate laws.
I’m talking about Subpart F, PFIC, we’ll discuss later and GILTY. And what that does to you, very brief about it. Cause you know, that’s a whole topic and presentation and on, on their own, what those do, those are anti-deferral rules. So typically you’ll be taxed. If you run a company, you’ll be taxed on what comes out to the company, to you in the US right? So whether you get salary like a bonus consulting fees, or maybe dividends after profit dividends, that’s what you’re putting on your tax return. And that’s what the IRS would look at when you’re in a lower tax jurisdiction.
Particularly you need to be aware of the anti-deferral rules, which means that under certain circumstances, even though you don’t take any money out of that company, it will be taxable to you weird, right? Because normally you’d expect, well, hold on is available in corporation, that company is a separate legal entity from me. Why am I being taxed on that? It’s because of those anti-deferral rules and the most recent of which came in in 2017, under President Trump’s Tax Cut and Jobs Act, which is a GILTY, Global Intangible Low Tax Income tax. So for those of you who have structures in low tax jurisdictions, like the ones that I mentioned, or even some other popular so-called tax havens, while like the Middle East, the United Arab Emirates, or certain Caribbean islands or certain structures that can Panama, depending on what you’re doing, you may have faced this, or you probably will face it.
So, it’s something, it’s tough, but there are planning opportunities within it. So because what creates a horrible cashflow issue because you required to pay taxes and income that you can actually, you don’t have, you, you did not receive the income, but you’re going to be taxing it because it company that is us controlled has made a profit. And that profit is attributable to you. There are great planning opportunities as well, and trust structures, because these are common mold jurisdictions, Singapore, Hong Kong, Malaysia. So ex British colonies. So a lot of the opportunities were in terms of trust, whether they’re foreign non-grantor trust or foreign grantor trust that they will be applicable and available to you, if you, those are his actions.
So have that conversation with your preferred tax team on those. Now we come to France, but I was told that like 99% of you guys are in France. So everybody in Paris. So, assurance V so that is one of the biggest challenges that we deal with when we have clients that are both French and US exposed, because obviously France, you know, we spoke about Spain and Portugal. We spoke about UK into, you know, Ireland is similar as well. You know, Italy, Belgium, Switzerland, they all have. Carve-outs where you can reside in Italy or Switzerland, whatever. And you can exclude, there’s an option to exclude certain classes of income that arise outside of those jurisdictions, right? There’s an option. The one exception is France, but then, hey, nobody moves to France because of taxes. Then move this by the taxes, right? They love the country. They love whatever they love. And you end up in France and then surprise, surprise. You get kicked in the teeth with French taxes as assurance V popular tax planning tool, as you are well aware in terms of deferring or optimizing your French tax positions.
So that’s something that many people have, but one must be careful because from a US perspective, it opens a whole can of worms under some circumstances, not just as your own as these but other investment structures and in France and elsewhere as well. I mean, I’m not picking on France. Once you have some sort of the equivalent of a foreign mutual fund or some sort of self-directed investment structure, it may be what is called a , which, you know, you may have heard of a passive foreign investment company. So this is basically like a holding structure where most of the income is passive in nature.
It’s mostly investment income, and then mostly investment assets within the structure. So just kind of keeping it simple that way. It is super, super, super popular. When you live in Europe, it’s hard to avoid. You have to deliberately set about to avoid it. And some times the person that is selling you at whether it’s the insurance person or the person in your bank, they may, they may not understand us tax rules. And, I’ve heard it so many times, then they would say, well, no, this is US compliant. It is FATCA compliant. That is such a misnomer. FATCA is not tax. I’ll just take a little bit of a segway. FATCA is a framework for information exchange, a financial account tax compliance act.
So there’s a frame of information exchange. It is not a task. So when that advisor, that well-meaning advisor is trying to sell you, that product tells you that something is FATCA compliant. What they mean is that there’s information sharing so that financial institution would share the information of US exposed account holders or US exposed investors with the US government. That’s all that means, but it still may be a PFIC. So PFIC is a class of, or category that really arose in the 1980s under president Reagan, because US domestic financial institutions were complaining.
They were like, hey, we have US clients who are not investing with us in the US they’re investing overseas because they get to defer taxes in a way that they can’t ordinarily do in the US are getting lots of tax breaks. So can you help us out with that? So then the pubic rules were enacted. So bottom line is that it creates a pretty aggressive tax treatment. Yeah, that’s a good way of putting it pretty aggressive tax treatment of overseas mutual funds or mutual or investment structures. So again, there’s a whole idea of Phantom income.
So once its growth in the fund, even though you didn’t get a distribution, but the value of the assets that you’ve invested in that fund has increased. You may have to pay US taxes on that growth. So, while a lot of these structures are tax efficient from a European or from a French perspective, they certainly are not. They’re poisoned, they’re poison pills in the US side. So have that conversation with your tax team, if it is, and this happens a lot, we’ve had people that thought, you know, hey, I’m living in Europe, I’m living in France. And I made an investment and I thought, Hey, well, I needed to do was filed a French tax returns after all, you know, I live in Paris.
I don’t live in New York anymore. I don’t need to think about like us taxes. Unfortunately, they figured out, Hey, you know, even though you live outside of the US it doesn’t matter. You need to, you need to file and pay taxes. And then another misunderstanding is, well, there’s something called a foreign earned income exclusion. So once I learn, earn less than a hundred K U S I don’t need to file in the US taxes, wrong. If you file, you know, the threshold for filing has nothing to do define an income exclusion foreign earned income exclusion is just as the name implies in a section nine 11, the US tax code. You have to the biggest and the best benefit to Americans working abroad, which is that you can exclude, it moves up with inflation.
So for the last year, it’s like 112K. So the first 112K of your income is excluded from US taxes. That’s great. Right? But that doesn’t mean you don’t need to file it. You file and it will be not taxable. So it’s kind of like just a report, but you still need to file. So actually, if you filed, for example, married, filing separately, the threshold for filing is $5. So if you made more than $5, you need to file a return. So speak to preferred tax team about if it is that you haven’t filed, because you didn’t know you needed to file you misinterpreted, or you misunderstood the foreign income exclusion, or maybe you’ve made investments in products like the sun city, and you didn’t declare it properly.
You didn’t do the Form 8621. It’s not any 8930. It is not a new FBAR. If it is that you’ve excluded any of you have foreign investments, you may have file to declare it. And there’s a wonderful opportunity in terms of disclosure, it’s kind of like an Amazon orbit name once your non-compliance was non willful. So you did not willfully seek to evade taxes or deceive the internal revenue service, right? Unfortunately the whole idea of willfulness is not discussed in the tax code. So we look at peaceful. So it’s, you know, you intentionally sought to evade a non-legal duty that’s that’s about willfulness.
So I’m talking to people who are non-mobile, if it is that you have been willful again, reach out to us, and we’ll put you in touch with tax attorneys that specialize in situations like yours. But I’m talking about people who are non willful. If you’re non willful, you may want to consider what you preferred tax team, the streamlined compliance procedures. So they driven kind of like by the statute of limitations. So the statute of limitations is three years for return and six years, right? So if it is that you have not been properly disclosing what you need to disclose any return, then you don’t need to go all the way back. You can just do the last three years, which due date has already passed. And the last six years, which passed in your FBARS and that’s a huge deal.
In addition to which you get to avoid legally, the penalties, which I mentioned before is like up to 50% of the unreported balance for the F BAAs. It could be $10,000 per form, per year for a foreign companies or partnerships and stuff like that. So that’s a huge win to avoid those really, really aggressive penalties. So please talk to you prefer a tax team about streamlined, right? So that’s a great way of coming to terms if it is, hey, you did not know that your French insurance or pension products or investment products were reportable in special ways on US returns. Yes. This is a great way to make it right. Okay. Another thing to consider another nugget to kind of discuss with your preferred tax team is the idea of defined, earned income exclusion in principle. You know, I mentioned before, you know, Form 2555, you get to exclude up to the first 112K of your income from US taxes. Under one of two ways, you can qualify under the physical presence test at a bonafide residents desk, which we can get into. If you, if you would likely to run, you can just let me know in the Q and A, and we can discuss it in more detail, but Hey, you get to exclude, this is a huge win. Let’s all go and make sure that we claim that foreign earned income exclusion, and that form 25 55, if you’re in France unnecessarily, you know what?
You can perhaps have a conversation with your tax team because under many circumstances, it makes more sense to waive or to not apply that foreign income exclusion, and just go with the fine tax credit. Why, because of the foreign, the French taxes are so much higher than us, that you want to be judicious and precious with your use of those tax credits because the IRS gives you credits from money paid to the French tax authority. And without getting into the details, when you elect that foreign income exclusion, you may be losing some of those credits. So again, speak to your tax team to see where the, hey, I know I qualify for the foreign earned income exclusion, but is it right for me, or is the smarter play here really to rely on my fine tax credits?
Let’s do that analysis. So another, another point to keep in mind would be, I know we get, because we do live streams for people who are French and US exposed. And, you know, sometimes we have like one over 100, nearly 200 people, and those zoom calls and throw all these questions on. As one of the other popular questions we get asked is, hey, what if I sat at set up an LLC in the US? And of course I still have my US bank account. I can open a US bank card for that LLC. Can that help me legally avoid my friend’s taxes? How does it work in cross-border issues of France in the US unfortunately, that’s not exactly how it works, right?
So just because the money is not received in France doesn’t mean that it’s not taxable by France. So again, remember France doesn’t really have carve-outs in the way that the other Southern European countries have like Italy, Spain, Portugal, or neighbors in Switzerland or UK Ireland. So once you are involved in that economic activity within France, chances are even though the money is received by an LLC, a single-member LLC, or whatever outside, it’s still taxable by firms. And there are other complications that come with you controlling fine entities and foreign bank accounts in terms of disclosure on the friend side.
So, again, the takeaway there is, hey, you need to be conscious of both the French and the US consequences of your actions. So what may be tax optimization on one side may be, may not be on the other. So you need a team that has some sort of joined up thinking and getting that right totalization agreements. And there’s a totalization agreement between us and most Western European countries, including France, where you can under some circumstances. So we’ve had situations where people have clients will come in and whatever. So they want to work remotely and want to work remotely from France, you know, beautiful place, wonderful place to be, but they want to maintain their employment where your relationship with the US employer.
Now, I’m assuming that they’re not too senior decision-makers, they’re not contract negotiators, that kind of stuff, because if they are according, I think that’s a section five. I think of the US-France tax treaty. It does create something called permanent establishment. So I’m not getting into that. I’m assuming that what you do does not trigger permanent establishment. Then there are opportunities using it towards immigration agreement. There’s an embassy government entity in Strasburg, where you can register work with your employer in the US. And you can register as that company can register as a foreign employer in France, and you can still work for that company.
And when you do, you may be able to, because obviously, you know, France social charges are pretty high compared to what you pay in the US right? So, you know, assuming you’re not going to be there from more than five years, there are planning opportunities. You can reduce this social charges, you can still pay social. You can continue to pay social security in the US and not pay in France, which is a huge tax saving of. So the, but you know, it takes some registration. As you know, France is brands is pretty bureaucratic, right? And that’s putting it lightly, but you know, there are, I mean, there are rules and you follow the rules and there are opportunities within those rules.
So it’s worth exploring, speaking to your task team about that registration process and saving you money and potentially saving your employer some money as well in that journey. So, Hey, heads up things to think about as you engage with your preferred texting. So I think we can come to the Q and A now. Lots of questions. So again, the takeaway is one person does not know anything. If someone claims, if someone comes to you and say, hey, I know everything, I would turn in the opposite direction. I drop no everything, which is why I’m glad that I have a great team around me.
And we worked together to solve client problems. So let’s jump into questions. Now, the first question that I want to answer was a question sent by Kathleen sometimes for Kathleen for, for directing a question to us. So yeah, the question is quite controversial, right? As well, whether the US would ever move to a residency based system of taxation, as opposed to the present citizenship-based taxation structure that they have. And, you know, the popular comment on top of that is that there’s only one other country in the world that taxes its citizens, regardless of where they go, which is a rich area, this tiny country in the horn of Africa.
So what’s, what’s up with the US now I’m going to tell you the truth as I see it. And I’m sorry to be the bearer of bad news. You probably won’t like it, right? They answer is no way that is ever going to happen. Likely do what you, what we do is, you know, it’s, of course it’s a political political question, but when you look at tax rules in the 20th century, the US has been a world leader. I mean, the US is when we’re leading in many spaces of activity, but what many people don’t realize is that the US also leads the way when it comes to international tax. So rules are created and enacted in the United States, other countries look, and they follow suit.
So, you know, we can start back in the sixties with transfer pricing, but the most recent example that I think is within everyone’s memory is FATCA. So fact it came out in like 2010, 2011, whatever it was a rider to the higher act. I think hiring incentives to reduce unemployment re to reduce unemployment, something like that. And under President Obama, right? So FATCA came in lots of unintended consequences, not a tax. As I mentioned earlier, it’s a framework for information exchange. So the US signed bilateral agreements with countries across the world, including those that he’d never thought would sign like Russia and China.
So basically everyone that’s, anyone of note in the world has signed, except for like in North Korea, Cuba, Iran, those kinds of guys, right? But most other countries that are not have signed. And under the factor rules, these countries have agreed including Switzerland to basically put aside or set aside the local bank, secrecy laws, and mandate, or require all of their domestic financial institutions to go through their books and isolate and highlight anybody. They suspect of being American. Not even if they self-declared because like, I’m showing lots of you guys just like me. We have more than one passport.
So sometimes we go to a bank and we open a financial account with the other passport. But if that bank, as part of its KYC, knows your customer process, if they suspect you of being American or US exposed because of certain industries or certain indicators that they are required by law to look for, even if you deny it, they’re required to report you to the US government. So that’s how factor works. It’s a freedom of information exchange and you think, oh my God, what’s that. But a few years later, we had something called CRS or the common reporting standard and the automatic exchange of information.
So basically consider that FATCA. So every, all the rest of the world had been signing up and that, so, so, so here’s the point. The rest of the world follows American examples. So when it comes to citizenship-based taxation,. We’ve seen increasing examples, especially in Europe, but also in other countries, Mexico and whatever, but especially in Europe, there’s situations where even though you leave that European country, you are still subject to those taxes for at least a number of years afterwards, or even indefinitely. Key example would be Italy Italian-American clients, right?
So if you leave, if you resided in Italy for a while, your Italian passport citizen, whatever, and you move to somewhere that has zero tax, think of Dubai, or if you move to Malaysia and you have zero tax and whatever, it’s at least still gonna tax you, you have the fallback rules that it is going to tax you. If you leave Spain and you go to a so-called tag-team and again, Dubai, Dubai is super popular right now, right? So you moved to Dubai for up for five or six years after you leave Spain, you’re going to have to pay taxes in Spain. So a lot of European countries have these fallback rules, which means that they are following the example of, of the U S so again, at a high level, that, that it’s unlikely, that is going to change because we see other countries following that example.
And remember, when I spoke about international tax earlier, I said, it’s come to intuitive because when you need US, your customers are thinking about the IRS, or they just want my money. They just want my money. But when it comes to international taxes and we need to talk about infrastructure and deals, like FATCA people have made the argument that is more expensive for the treasury department to administer factor and that information exchange situation than revenue that they collect from the seven or 8 million us citizens that live outside of the US, right. It’s more expensive to me. So it’s not about the money, it’s about information. And of course we know what’s going on with social media companies, et cetera, right now, information is gold.
What they, what the US government wants is your information. And that’s why those reports that you do the F boss, the 54 71 to find companies the 86, 20 ones for your pension fundsand your other investment structures. So your partnerships, it’s more an information disclosure than it is revenue collection. And the us government is not going to give up the opportunity to collect more data. So, unfortunately, people, I know there are lots of lawsuits. I know there are advocates outside of the US who are on a campaign, but keep in that bigger picture as to what’s going on in the trends that we’re seeing.
We’re like, no. So I’m going to scroll back up to the top. And so the child tax credit for Americans residing abroad. So my understanding of that, I’m not to pollute up on that situation because my understanding is that mainly applies to those who reside in the US. When you reside outside of the US, I did the new child tax credit. I do not think that that applies in addition to which, for many of our clients. And when this goes on the back of questions around the stimulus payments as well, when of our clients earn above the threshold.
So, they phase out of the stimulus payments as well. So, but with the child tax credits, I believe it’s not applicable to those who are residing outside the US. Like most of our clients and us, we all are please specify what exchange rate to use for and other forms that require us to convert amounts of USD average a year. And so with 8938 and FBARS, we tend to use the treasury rates. And I think when you read the instructions, they there’s a bias. They prefer that you use treasury rates. If you want to use one of the other exchange rates that you can easily choose online, there’s space for disclosure about, especially on the United States, you can say, if you didn’t use treasury, what rate did you use?
You can disclose. But we use treasury for FBARS in 8938. And we use for the other information, like your income and stuff. Again, there’s no rules about what you should use, but we tend to use the IRS exchange rates, which are available freely at IRS.GOV, just to make it easier and consistent. So, you know, few questions, next question for FBAR with a joint shared bank account and with non-US person, NRE how does one declare the amount they shared in the account, full of half? Great question.
So we declare everything in their account, because remember, this is ordinarily, normally there’s no tax, right? This is just, hey, uncle Sam wants to know what you’re doing. And bear in mind under factor. Chances are the bank is reporting you as well. So, and we help some financial institutions do the report. So we work on both sides. We work with clients like yourselves, and we work with financial institutions that need to report to the bank. So we have a team that does the factor submissions. So we know how it works because we do it, right. So it’s an XML report that’s done automatically. So my point is this, if you send your report on your FBAR, 8938, and it says you have $50 in it.
And then the bank tells the federal government and you have a hundred dollars in it. It creates a Delta, it creates a mismatch. And it creates, I mean, whether they were ask whether they, you know, treasury or the IRS would ask a question on that really depends on who you want, how big, and you know, which agents is looking at it or whatever, but they can ask it’s best. If you just report everything that’s in their account. Again, there’s typically no tax implications to that to just report everything. So then what the bank tells the government is the same story that you’ve told the government, nothing to see here, move on, pick on somebody else.
Next question. Does New York state require former residents? No residing abroad to file attached a state tax return? It depends. Right? So we’ve had situations where, so like for example, I had an apartment in Queens and New York. So if there are certain rules, like, for example, if the, if you have a property in New York and it’s available, it’s not being rented out. Isn’t, there’s no Airbnb, there’s no tenant in it? Then you can still be deemed by the state of New York to be tax resident in New York, even though you haven’t been to New York for years. Right. So the answer to answer your question. Yes. Under some circumstances, you can be deemed to be tax resident in New York, even though you no longer reside there. So again, speak to your tax team about, and, and you can get a chance to get into the details of your unique situation to see whether you do trigger tax resident in New York or whatever state that you may have some connection to. Next question, your recommendation on a book on us income tax or us ex-pats. Well, I mean, you know, I’m, of course I’m going to be biased. I published three books. So, the first book, which is on tax for international entrepreneurs, and ex-pats, it’s available on Amazon, if you, depending on what a subscription you have with Amazon, it may actually be available for free.
So it’s available as an ebook, as an audiobook of physical hard copy as well. Other than that, on our website, HTJ.tax, I have over 2000 articles and international tax, as well as over a thousand videos on international tax. So there’s a lot of free information out there, and there’s a lot of information you can purchase, but because the US code, in particular, is so nuanced, I mean, federal tax code. And that’s like all the 8 million words, and then you have state issues and then you living somewhere else. So that’s another few million words in France or Portugal or wherever it is you want. So that’s tens of millions of words. So my advice is good books. Yeah. All good, but get a good advisory team. That’s even, you know, probably a smart idea, right?
Next question. Same question. As thumbless for Illinois, does Illinois state tax-effective answer. So again, the same answer. You’d need to really sit with your preferred tax advisors and go through the rules around domicile and Illinois, California, you know, whatever state you, unless you win one of those. Each state like Wyoming or Nevada, where or Alaska, where there is no state income tax. And you have nothing to worry about. If you are resident in any, oh, you have ties to any other state, have a conversation with your advisory team to really test whether you have filing obligations and deal with them. And more importantly, Redamo silencer steep without those. So you just don’t need to worry about it, especially like your states like California, that were signaling that they were thinking about a wealth tax and that wealth tax could be retroactive. Even if you’ve left California within, you know, so speak to a tax team about whether you have any existing obligations and how, and if it’s in your best interest to read Domus out to one of those states without an income tax.
Next question from Vanessa, this tax penalties, if we decide to transfer from an overseas savings account, into a US savings account, all at once concerned about the state of the Euro and events of the escalating tensions in Europe and actions that we can take to minimize financial impact. So once that money has been taxed last year, we helped a client move about 20 million Euro from an account in a European country that I won’t mention back to accounting to us. So the only bank wants to see is that you file taxes and this is clean money, right? So this money has been taxed somewhere. So show me the tax return for wherever it’s come from and show me your tax return as the American, bringing it back into the U S and of course, there are lots of other forms that are triggered by, you know, like the whole fin send stuff there. So there’s a lot of banking forms that they need to fill out, but it’s just bureaucracy. It’s just people work. The most important thing is that money is clean. It’s been taxed, and you can prove that has been taxed wherever you’ve had it. And that you were fully Qatar compliant and yeah, you’re right. There’s, it should not be taxable and repatriation once it’s already been taxed, there should be no extra taxes to pay.
So hold that house on the US side, of course, on the European side, assuming that in Europe, there may be, you know, because if you have it in a tax-deferred account, for example, some sort of assay wants to be, or some sort of pension or insurance structure, there may be taxes due upon breaking it. So I’m talking about the US side. Okay, well that helps moving down. What’s of us already, you know, abroad countries. Most of us are immigrants, longterm, if not permanent residents abroad. So pre-migration planning is out of question, okay, that is Helen. Next thing, Lena, if I inherited in the US, what is the best way to bring the money to France for a dual national?
So, yeah. So in terms of inheritance and gifts, that is a specialized, specialized space. And so I would recommend that you speak with a French tax attorney or a tax accountant on that if you want, you can reach out to me, I’ll introduce you to MV who’s based in Paris, or you can speak to you and preferred advisor on that. So it is, it is very, very nuanced, kind of like in the U S if we just look at it on the west side of all the, I mean, taxes like a whole body of practice, right? So some people specialize in certain state tax issues. Some people specialize in taxes for funds or partnerships or escorts or whatever, the area of us tax with the most lawsuits, the most litigation is estate and gift taxes. More people get sued in that space, in any of those. So it is, it’s very, very nuanced and I, the same applies in, in Europe as well when it comes in state and gift taxes. So I would recommend that you speak to, I’m assuming that on the US side, you have proper advice. So I think you need to sit down and talk over the details with your preferred tax advisory team in France.
Okay. Same question as Nina. Same question as Nina, Kathleen, good point Ellen, about long-term residents abroad. Yes. Already some him on the 10 years, and then Ellen comes out and of course our kids born here never lived in the US. Never even immigrated, not going back, but stuck with us tax filings, no us taxable income, not inclined to spend money. Okay. All right. Thank you so much. Do you have any info for Monaco residents? I actually was in Monaco for the week last week, obviously. So in terms of Monaco, you’re, you’re sitting pretty right, because there’s no personal attacks in Monaco. So your situation will be akin to someone like in Dubai or any one of the tax havens. You don’t need to worry about the domestic side in your case Monaco. It will just be purely us tax planning. So in terms of specific information, it depends on your situation. Reach out to your preferred tax team. You can reach out to us and we can talk you through that. And it’s a question Corinne. I have an LLC in the US, which in turn, pays me in Spain when legally resident and I pay Spanish taxes and then money earned. And I take a foreign income. Exclusion is any reason to foresee that I cannot do the same in France when we move in a couple of months. Nope. Once you all France, France is, is easy to the extent that there’s a limit on what you can do, right? So in, in Spain or in Portugal or Ireland, or, you know, in UK, we roll up our sleeves and we as tax advisors, we get all excited because there are huge planning opportunities in those jurisdictions and France. There’s nothing to do because there’s just so little in terms of tax planning, you can do so you moved to France. I mean, definitely speak to an advisory team about, cause I don’t know your unique situation.I just know that you have an LLC, but of course life is more complicated than that. So I’d recommend that you do have a, a pre-migration tax consult with someone who’s qualified and ready to do so, but generally speaking, there’s not much in terms of tasks Bonnie can do when moving, moving into France, just be prepared to pay taxes and everything. Pretty much. Next question. Tracy says that she sent an email about capital gains in the US and taxes in France. Sorry, Tracy. Up to two hours before this, we didn’t receive any email. Sorry about that.
Next question, treasury. Okay. Right. So somebody is responding the treasury. Yep. Okay. That’s fine. Next question. Hi, Barbara is asking if I have inherited part of a family home, but do not reside in that state. And she gives a state, would I be considered a resident of that state? Depends on it. So normally there’s a lot so it’s not just one thing, but it could be a series of other Fasten circumstances. So to answer your question potentially you, because I don’t know whether you registered to vote. I don’t know whether you still have an active driver’s license. I, you know, you know, so potentially yes, but like for the questions earlier on Illinois and New York, you probably want to sit with an advisor and go through your situation in detail to see whether that state may still have any claims on you. And regardless of that, it’s still great task planning to seek, to actively improve, actively read Domus out to one of those eight states without an income tax. So hope that helps. All right. There’s a bunch of us from the ear or living in Germany. Can you say anything about taxes for your citizens? Do you will? So do you all you as German citizens living in Germany, not at this point, if there’s something, you know, specific, but in terms of general, generally, Germany is kind of like Crohn’s and that there are not that many carve-outs so Germany and Scandinavia and France, not as much, whereas in the lowlands. So like Belgium Holland, because Holland has its offshore thing going on as well. You can its dependencies, Southern Europe, Switzerland coming back on the other side, great planning opportunities, advisors like us. We get excited, this stuff to do. But if you’re in Germany and France and Scandinavia, typically there’s not much that can be done. But again, it’s still with having a conversation with a qualified and experienced tax professional to take a deeper dive into your situation, to see what’s possible down, moved to France recently, what a reputable advisory team, not even sure where to look, you can Google. Lots of stuff pops up. Otherwise, you can reach out to us ECG at our tax and I can introduce you to Arabic and we can work together to see what, what, you know, how we can help you out. So can reach out to us some. So John is saying me too, I’d like the team to be reasonably priced. Well, you know, going to be 100% honest, we’re not cheap. We’re not the cheapest, but you know, we believe that you get what you pay for. So there are guys that would do it for a certain price and sometimes not always, you know, not passing aspersions on anybody. Sometimes it may not be the level of experience and professionalism that you’re looking for given your circumstances. But if your situation is super simple, you don’t learn much and you have a single source, then that’s fine. You know, the guys that I’ve, you know, Google, Google is your friend. Just have a look. The guys that do it for a hundred dollars or $200, and maybe that’s the right fit for you. But we’re not the most expensive with somewhere in between.
So moving down. So your name is abbreviated. You’ve just reached out to us at did tax happy to discuss William in your French. So William is asking, is your French colleague conversing with US tax position can on French marital regimes. So, it’s a team. So not a one-person show. So the guy in Paris, isn’t sitting in Paris by himself, nobody to talk to, there are 10 other people in the office.So, if you reach out to us issue general tasks, we put you in touch and we can deal with both the French and the US side. If it’s something that’s very, very nuanced and it’s beyond our capacity, we’ll raise our hand and say, Hey, this is not for us. And we can recommend a French lawyer that can help if it’s something that’s too niche. So yeah, we’ve ever done. So Michael, thank you, Michael Kathleen, based on what Ellen indicated for our kids born outside of the US but still being a US person of having anxiety and live in a state in the US question. If the children vote in the US based on my last state residence, Minnesota, they in fact considered transferring to one of those eight states that have no taxes. Yeah. So I mean the same privilege that’s available to you, your kids should. Well, first of all, yeah. So you, you kids assuming that you are deemed to have been domiciled in the US or you’ve lived in the US for more so it’s not everyone that’s American can pass citizenship onto their kids, right? So that’s, that’s where I acknowledged him. But for those that did have ties to the west for the requisite number of years, and at least one parent was American, then yes, you kids can become accidental Americans, but they can renounce it/
They can give it up when they like, and we have an article on our website that does talk to that. And I’ve also done these live streams where US immigration attorneys as well. And we, and we’ve spoken to those issues. So it’s not that the kids can give it up whenever they’re ready and legally able to, they can give it up and they are, they can build themselves at the same task finding opportunities that you do, you know, as you should, they decide to keep it so they can select it. You know, if it is that somehow, maybe they went to college because that happens, right. They stay outside and then they go to the US for college and then they leave. So maybe they’re tied to the state where they attended university. They can switch state domiciles, just like you can. So again, with having a talk with a qualified professional, to make sure that your kids are making the right steps and there’s nothing that would bother them later on. And Joe is asking, what about residency-based taxation, Juul? We mentioned, we, we spoke about that. That was the first question we answered. I don’t know if you’ve just joined this job, but on this recording with Kathleen can make available. We, that was the first question we asked the question as to whether just my very humble opinion that the US government will ever contemplate switching from citizenship-based to residents-based taxation.
So I kind of spelled out some of the trends within US politics and the wider macro geopolitical situation right now, and the importance of data. So just to cut to the chase, the bottom line is I don’t think it’s ever gonna happen just a few more. There’s a lot. Okay. So sorry to those other platforms that I can’t get, but sorry, but I’ll just deal with this last few and then we’ll call it a day. So if I sell a home in the US and non-primary residence, can you tell me how the capital gains works in France from an income tax social charges perspective? Thank you. Well,you know, in France is going to be tasking worldwide income, if it’s not, if you’ve not lived in it, so it’s not a resident. So I guess it’s an investment property. It’ll be taxable in France as well. So as to what the rates would be and stuff like that, I can’t tell you that often, I need to introduce you to who can give you the deep, deeper dive into the nuances of that situation. So just, just let us know. Okay. What is question from Georgia? I see a question on politics, apolitical. I, we don’t take a position. We’re just, you know, we’re just a business, right? Just about serving our clients regardless of the political shadow orientation. So, Marlene is asking for ballpark real figure for what you charge. So in terms of indicative fees, if it’s a simple federal return, it’s $600. If it’s simple state $300, simple FBARD 300, if you have a foreign company, a simple 5471 is $1,500, simple 1120s, 1500 or 2000. So it really depends. Corinne. Thanks for sharing. Admit, being skeptical about these types of presentations tend to be sales. Okay. Thanks. Thanks a lot. Corinne, Kathleen. Okay. Thank you. And I see other questions, but thank you very much. I appreciate your time. Thank you, Kathleen. And the team at AARO for making this happen, Christine. I see she’s just turned her camera back on. Thank you, Christine, as well. Again, if you want a copy of this to look over or to just share with your colleagues, please just reach out to Kathleen directly. Otherwise, we actually do that. We do these live streams every week and within a couple of hours, I’m going to do another one on offshore structures in the BVI, British Virgin Islands. So for those who want to get a little bit more sophisticated, but hope to see you next time. Good luck have a great day night, morning, wherever you may be.
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