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DERREN JOSEPH:
So good day. Good afternoon. Good morning to everyone. Depending on which time zone you’re in, welcome to HTJ tax. We will talk about all the things that are taxed like 1040 form UAE and others. How often do we do these live streams? Well, every week we took a break for August as most people did, but now we’re back on schedule this year. This week, we’re talking about U S taxes for those residents in the Gulf states, primarily the UAE. Next week, we’re going to do Singapore and so on. So that’s where we are now, this is being recorded. So if you do not want your image to appear, all you need to do is keep your cameras switched off. It will be recorded. And for those who couldn’t make it, and for those who say that they need to leave early to attend other events or whatever that’s okay. So we recorded it will be made available on a website, which is HTJ.tax, as well as on YouTube, in Facebook in our Facebook company page. And, wherever else, you’re going to get your podcasts because we publish on, I think 23 to 24 podcast platforms. So iTunes, SoundCloud, Amazon, and Spotify. So wherever you get your podcasts, you can, you can find this. So don’t worry about it and you can get the link and you can share it with your friends. That is no problem at all.
Now, in terms of the formalities, we are not advising because no one can know your situation inside out, and someone will need to know your situation and set out. So I’m a tax advisor, but I’m not yet your tax advisor. We’re going to talk about general principles and hopefully, you would leave with an appreciation of what the key concepts are. As you need to keep in mind, as you find yourself, the right tax advisor to work with you and your family or your business, right? So you were invited, Hannah sent an email or a message to everyone. I think it was yesterday asking if you would like to submit some questions and some of you did thank you for that. And we’ll go through those questions if it is you did not. If you would still like to submit questions, feel free to do so. All you need to do is type them in the little box below. If you’re on zoom, like many of you are, if you are on Facebook, you can type in the box below on Facebook as well. And we will get to them in the order in which they are provided. So, yeah, again, it’s not advice, consider it education or maybe even entertainment. I don’t think anyone should be taking tax or legal advice from someone who’s just online. You need to get someone engaged who is properly qualified and able to do so. So without further, we’ll jump into the questions that you guys have submitted over the past few hours or so. Okay.
So lots of questions on foreign companies and thank you for those and send those in and thank you for those attending the questions on the trust as well. And what else did we get on form 8854 and crypto? And there’s one person that the US questioned on taxation for crypto. So that’s what we’re going to talk about this evening or today, or this morning, depending on where you are going to talk about it a little bit about trust. You’re going to talk about owning or controlling a foreign company. We’re going to talk about, the w a w nine forms form 8854 for someone who’s giving up the U S citizenship or green card, as well as something on crypto. All right. So someone is asking about what is a trust, and they’re asking about the distinction between a living trust and a land trust. And I guess this person is a real estate investor. Like many of you are, right? So I think the first thing to clarify is that a trust is not a way to, ordinarily speaking a trust does not give you any sort of tax advantage. I know that when you, especially when you look at movies or certain television shows, it does give the impression that it’s this, you know, this holy grail of this, this some sort of tool that allows you to pay zero taxes. And, normally speaking that is, that’s not the case, a trust isn’t a legal entity, but it’s a relationship as a contractual relationship as a fiduciary relationship. So it is, it exists in a sort of gray area, I guess, which leads to some sort of misunderstanding. But anyway, trust is kind of like a contract between the person that has created the trust. Normally this person in the US calls out a grant or in English, common law, like in some of the free trade zones in the Emirates, for example, the IFC, which is based on English common law, it will be called a set law. Sometimes they call to trust and it conveys usually some sort of asset into this relationship with someone who now is responsible for it, usually a trustee, and there tends to be a beneficiary as well. So, those tend to be the key elements. So a living trust would be, I guess we can describe a trust that has been created within the lifetime of the grantor or the settlor, which is in contrast to other trusts, which can be created upon someone’s passing. So it’s something that’s created while someone is alive. Now, this living trust could be, it could be a couple of irrevocable in the sense that you, if it’s, revocable the person who’s, the grantor still has some degree of control over the assets, within the structure, within the trust. If it’s irrevocable, then they hand it over or real control to the trustee. So, those tend to be the two differences right now, a land trust is a type of living trust, but it is conceived to hold title to real estate or real estate-related assets, such as real property, land options, contrast for deeds, mineral rights and stuff like that. Right? What’s the difference? And here we talking primarily about some, a trust that has been structured within the U S so the land trusts are very specifically designed, and the difference is in the drafting to hold real estate, as we mentioned, whereas a living trust, can hold real estate, but it can also hold other types of assets as well. So the advantage I’ve established is that it has nothing to do with tax optimization, ordinarily speaking, right? It’s really about probate avoidance and privacy. So that’s sort of living for us, allows you to do so. It’s a way of succession planning. It’s, it’s, it’s, it’s part of the conversation that you would have around estate planning. So it’s, it’s not something that’s usually conceived of in isolation. It’s normally part of a comprehensive succession planning on estate planning strategy, where you’re looking at some degree of privacy, as well as probate avoidance, because in the absence of a structure like that, upon you’re passing your assets, even if you have a will, your assets will still need to go before the courts. And depending on what state you’re in, it could be a matter of public record. So, you know, you want to keep that private, you want to keep the assets private and you want to avoid probate and just make sure that there’s a smooth succession from one generation to the next. So do keep that in mind, even if, even if you have a will, which is a more popular planning tool, things still have to go before probate. So I hope that helps. It’s not a D. The key takeaway is that it’s not about paying zero taxes, no matter what you’ve seen in a movie it’s about, depending on the way it’s structured, it could be about asset protection. It can be about wealth protection. It can be about probate avoidance. It could be about efficient and effective, you know, succession planning, but it’s not normally about tax optimization. If it is that you have assets outside of the U S of course, the free zones, the most popular of which I would. And at least within my little ecosystem would be the IFC they operate on. Generally speaking under English, common, well, not American, but English as an England English common law. And they do allow for trust structures. But of course, for that sort of, if that’s a road that you want to pursue, a route you want to proceed, you should get, you should sit with an advisor. We don’t do that, but they are advisors that will help you get that sort of structure in play in the UAE. Or perhaps you want to have something in the UAE for your assets outside or in, in, in the Emirates, or somewhere in the Gulf states, something separate, and then something separate in the US for a few assets there, but it needs to be done in a coordinated fashion. So I recommend that you seek professional advice from a team that understands both the legal system within the gulf area, depending on which jurisdiction has been triggered, as well as within the US. So I hope that answers your question. The real takeaway is that you need to sit with someone and give them the details of your situation and get specific tax advice, tax, and legal advice. Okay. So that’s that.
Next question. And again, if you didn’t get a chance to submit your questions in advance, you can do so now all you need to do is type them in the little box below, and I will get to them in the order in which I see them on my screen. So next one, someone is asking, okay, so I’m just reading it as a bit of a long question. Okay. So someone is, of course, this is pretty common. They want to set up a company in one of the Emirates, right? And in a free zone. And they’re asking about the tax implications of tax, the US tax implications of doing so of course, setting up a company is a pretty common means of not just of running your business, but of getting residency in, in certain Gulf states. So, because you can form your company and that company then sponsors, your visa and your Emirates ID or whatever the case may be. So that is pretty common. But of course, that’s a, it’s a good thing you ask him because it could have tax implications depending on your situation. Right? So we look at it in terms of generally speaking. So this is, again, we’d been very, very general, and you need to get advice specific to your situation, but generally speaking, we look at it where you own control you as the US exposed person on a control, less than 10%, were you wanting to control between 10 and 50%. And when you own and control 50%, more than 50%. And when I say you, I mean, someone that’s US exposed. So if, for example, you may have 30%, but there’s another US-exposed shareholder that has 30% as well together. The US shareholders control more than 50%. And then that triggers a certain tax treatment, right? And that’s attached Friedman that you need to look for this, this were entities controlled by us persons. And that’s the control foreign Corp. Cause you control, you trigger what we call CFC rules. But anyway, if it is that you have less than 10%, then typically that is okay to the extent that there is less impact on your US tax return. And what do I mean by that? You would, depending on your situation and depending on what your other financial assets may be, it may trigger disclosure on form 89, 38, which is a disclosure of foreign financial assets dependent that you know, that there are thresholds, but that’s one form that you need to look at. But the good thing is that it’s kind of like your FBARS in that it is an asset declaration. It doesn’t necessarily trigger a tax liability. So that’s an important distinction to me. So that’s 8938. There is something called a PFIC or passive investment company, which is, it is, it is quite nuanced. It’s when, so again, we were talking about where your interest in a foreign entity is less than 10%. So a prefect is a designation. You’re looking for it, it’s a designation in the tax law that was created in the 1980s, I think under President Reagan. And so it’s called section 1297. So this is where 75% or more of the gross income is classified as passive of this entity. So 75% of one, what do I mean by passive can be interest dividends, capital gains stuff, light up, but it’s passive or 50% or more of the assets are held for the production of passive income. And that typically involves real estate or something else that would produce the passive income, which we discussed previously. So what if you have that <inaudible> designation suddenly crosses from being an asset declaration to something that can have a real tax impact? And what do I mean by that? You may be subject to one of the anti-deferral rules. So in us, in, in the, in the US tax law are three types of assets, income diff anti-deferral rules that you need to kind of keep in mind, there’s this <inaudible> regime, which we’re talking about now, they’re the Subpart F and there’s guilty. We’ll get onto those other two later. So we are talking about your interest being less than 10%. And if you add up all the other American us explore shareholders, your collective interest in this entity does not exceed 50%, right? So less than 10%, if you trigger this P-Funk status, that means that you can be subject to tax on Phantom income. What do I mean by that? If the value of the company or the underlying assets or whatever, depending on the structure, if it increases in value, even though you did not get distribution, no, you didn’t take any dividends. You didn’t take any interest, whatever it is, even though you didn’t get distribution, the value has gone up and you may have to pay a tax on that Phantom gain. That’s a paper game. So that’s, that’s a rough way of describing the PFIC rules and why it’s something to be careful with. There are ways of legally avoiding it, which you can discuss with your preferred advisor like this, check the box election, and stuff like that. So have a conversation with your preferred advisor, but keep in mind that 10% or less, you may be exposed to P-Funk rules, but depending on your other assets disclosure under the 9 38 on the form, 89, 88. So what happens if you have ownership or control of between 10 and 50% in his foreign company? And there are no other us shareholders just to you and it’s between 10 and 50% notice. I said, ownership of control because I know people like to use nominees. That’s a common part of a corporate structure and not just in THE GULF area, but in other parts of the world as well. I considered parts of Southeast Asia where we have quite a few clients. So when I say control, it keeps in mind, or it also extends this conversation to those nominee structures. Even though on paper, you may not be there. If it is that you have that. If you can access, exercise, influence, you know, you have a share of voice, maybe not a share of value on paper, but show voice in between those, those thresholds. This would apply to you as well. So you’re looking at disclosure well too, if you made an initial investment, it may trigger a full nine to six, as well as the existence of your shareholding or your interest or your voice in this foreign entity. May, this may require disclosure and a form 5471, but it’s not perfect. Usually, it’s not like the <inaudible> where you may have to pay tax and fancy when it comes. So it’s just a disclosure. And so it doesn’t normally have an impact on your tax liability. Now, keep in mind that international tax for US international tax is counter-intuitive. And what do I mean by that? I mean, typically you would imagine that the internal revenue service plea pays greater attention to someone who doesn’t pay their taxes, right? That just seems to be logical, but it’s, the IRS is not very logical sometimes. And I, we know that it’s a bit counter-intuitive because they seem to focus more on when you do not disclose activity outside of the US so investment activity or assets outside of the U S. So for example, if you don’t pay your taxes, then, of course, you know, penalties or interests or whatever, but if you don’t disclose like a financial account, that could be up to 50% of the balance in their account. If you don’t disclose the existence of reinvestment in this company and a form 5471, then you’re looking at $10,000 per failure to disclose that that’s not a small amount. And if you have one or two free zone companies, as many people do, it just happens, right? That could be $20,000 each. And in terms of the balance in the accounts under the AF bars, up to 50% of the unreported balance, and there’s a famous case in Florida where, you know, fat is famous for us, where we really got up and pay attention a few years ago where this, this guy, I think he was a dentist. And he had about a million dollars in an account in Switzerland, which the IRS deem that he forgot to. He, I think was non-helpful, in not disclosing it over three years, but, the point is they went for the maximum. So he was given three years, a million dollars. So half a million each. So his penalty was $1.5 million in an account with a million dollars in it. So my point is that in the US international tax pays special attention to disclosing your and disclosing your holdings outside of the US not just paying a tax bill, but disclosure is important. So, circling back to where we were, that company, that company, which your interest is between 10 and 50%, then you need to pay attention, make sure you get your 5471. And for your initial investments, United to six, that pays special attention to that because of penalties could be pretty aggressive. And if you have signed the signature authority of a corporate bank account like many people do, even though it’s not in your name, it’s an, but you can sign for it. And even if you could, even if you’re signing authority means that you can’t sign a check on your econ sign for a transaction on your own, there’ll be you plus another director, or you plus another C-suite exact it needs to be declared in your FBars still. So spare attention to disclosure. So last but not least, it will be a corporate structure where your interest is more than 50% or you plus the other us expulsion holders exceeds 50%. And by us exposed, not just if you have a US passport, but if you have a green card as well, or you know, it could be, you have section 7071 substantial presence. You spend a lot of time in the US and intentionally unintentionally, you trigger US tax resident. So if it is more than 50%, you have what is called a CFC or control foreign Corp. And suddenly it’s not just about disclosure, but there may be tax implications. So you may trigger certain tax consequences, not disclosure, but a higher tax bill. If it is that you have a control foreign Corp, that it may not, that hasn’t been structured optimally. The three regimes that you’d want to pay attention to would be Subpart F, which came around. I think it’s in the 1960s. What else under the tax cut and jobs act, do you have guilty of? So I think those are the main ones we spoke about. PFICs already, when it’s a CFC, if it’s an entity that can trigger both and CFC rules, then CFC rules tend to win. So if you look at CFC rules, we were ready to discuss PFA. So it’s a CFC that controls foreign quotes. You have control of foreign Corp as a US-exposed person in one of the free zones. What are the implications? Right? You could have a, what is called a Subpart F income, and what is supplied that’s under section 9 52, or think of, of the US tax code. So this is asserting a classification of certain types of income. So is where you have an interest in the foreign company. And it can trigger support F status in one of several ways. There’s insurance income that is foreign-based company income, this foreign-based company sales income. So basically if you have in one, if your companies established in one jurisdiction, but that same company did business in another jurisdiction, other than the one in which is incorporated, and especially with a related party that could under certain circumstances trigger a subpart section 952, and then more recently in President Trump’s tax cut and jobs act back at the end of 2017, you have the creation of GILTI, which I think is section 951 a. So this guilt is global intangible, low tax income, and what it does, as the name suggests, it focuses on entities that have been incorporated in lower tax jurisdictions. For example, one of the Gulf states, which is very low with zero tax, depends on your structure. And it imposes a minimum tax, which is around 1010, and a half percent at this point, it’s a rather complex formula based on tested income and, and stuff like that. But essentially, even though under both the Subpart F rules and the guilty rules, the point is that you would have imagined that this company is only taxable to you as this shareholder, when there’s a distribution, either in the form of dividends or in some sort of salary or compensation director’s fees or something like that. And you would have thought if you were to leave the money in that company, that it would not be taxable to you. So the bad news is under these regimes and will be taxable to you. So even though you did not take a distribution, you are deemed to have taken a distribution. So again, it’s a situation where you’re paying tax on Phantom income that you did not receive. Now, you’re not going to be double, so you’re not going to pay tax on the money that’s earned. And then when you take it out, you’re going to be taxed. Again, now you create a pool of previously taxed income within the company. And then when you do take that dividend alga, they do take that bonus. Then you get to offset the tax already paid, and you just pay the Delta, you pay the difference. But my point is, I know it’s a pretty long-winded answer that when you have that company in the Gulf area, in the UAE, in Dubai, wherever, wherever it may be, you’d want to speak to your advisors to understand, Hey, what are the tax implications? And perhaps there would be planning opportunities, ways to plan and to structure it in which it would reduce the compliance burden upon, you know, the time you’d need to do the returns every year and the price associated with that, obviously as well as the tax liability. So those are the factors you need to consider. I hope that helps get advice, right?
Yes. Capoeira, I’ve seen your question. Well, we’ll get to that shortly. Just going through the others that were sent well kind of actually related to you, as someone is saying, okay, the contractor, they’re doing work for a US company. So a company based in the US and they’re working from the gulf area, and they are asking about form w aids, right? So depending on the structure, and depending on your status, the company that you’re working for may ask you to fill out a w form. If it is that you are the US exposed, like many of you are, you’d probably want to be filling out a w nine, in which you disclose that, Hey, I am a US person, and here’s my social. Or if you’re working through a US entity to that client, then you may want to disclose the EIN or the employee identification number. So, it depends on your situation, but if you are in the US exposed, you want to be using a w nine. If you’re not the US exposed, you probably want to be using one of the many w-8 forms. There are probably like a dozen of them, the most popular, which is the form w-8 itself, W8 itself, and the w-8 Ben E the difference being the w-8 Ben is normally for a natural person. And the WN. Benny is normally for an entity. These are non-US entities or non-US, natural persons. Now it becomes a bit controversial because, in those forms, you have your self-identification that you are not the US exposed for purposes of chapter four. You are, you know, in revenue code chapter four, withholding doesn’t need to get into that. But, it is, you’re saying, Hey, I am not US exposed. So where are you exposed if it is that you, for example, if you, in the UAE, the point is that these are, you know, of, you know, Saudi or whatever, depending on your situation, there is no income tax, right? And you’re not a US person. So what do you put under this section for where you tax resident and what is your tax ID? What is your foreign tax ID? These zero 6 cents have no tax. So how can you give a tax ID for the jurisdiction that has no tax? And it is, it is a bit controversial. The UAE does not issue tax IDs. So there is no F 10, right? The UAE, as an example, issues a residency certificate also known as a tax domicile certificate, but that’s not the same thing. It’s not, you can’t be a tax resident somewhere with which one can argue, you can’t be a tax resident somewhere without taxes, right? So pay special attention to those forms. And you may want to seek advice and fill out the w-8 form or w nine form w nine should be straightforward but dump one of the WTA forms for any transaction. You involve them with an entity in the west, so pay special attention cause it’s a nice segue. I’ll answer your question. Kapoor, what are, what are the consequences of not filing FATCA? I assume that and correct me if I’m wrong below. I’m assuming by that you mean that you haven’t filed a US tax return and you are US exposed and required to do so. In that case, you may want to speak with an advisor, to look at one of the options for you. Basically, generally speaking, there are many options, there are many options, but generally speaking, when you speak with your advisor, a determination needs to be made as to whether your non-compliance was willful or non-willful if it was willful. So the number of triggers for that. So, there’s no definition of willfulness in, in, in code and then the revenue codes. So we have to look at case law. So if it is that you intentionally and deliberately sought to evade a known legal duty, then your conduct may be deemed to be willful. And he may be wanting to look at one of the disclosure programs, in the IRS manual. So you’d want to speak with a tax lawyer. If you don’t have one, we can introduce you to a tax lawyer who specializes in, in disclosure cases that for someone who may be willful and then our compliance, and you made a decision that now is the right time to come follow, which is always good. I just want to get it, the important thing is to get to the IRS before they start looking for you. Once they start looking for you, you’re gonna have a whole world of hurt. So that’s one option. If your non-compliance was non-willful, then you typically are looking at the streamlined compliance procedure, which is something that we do work with. We do probably four or five or six, maybe each month. It’s driven by the statute of limitations. So you file a three years return. So the last three years, which Judy has already passed, which in this case will be 21, 20, and 19, and the last six years of Fbars, which will be your foreign bank account reports, which we’ve referenced previously see during those together, as well as a statement, which explains your non-compliance. Most people write to themselves. Some people get an attorney to help them draft it, which we can work with you on through the attorneys that we work with. And the good thing is that the IRS would agree to waive penalties. You pay interest on any taxes you might owe, but they would waive any penalties that may be due to your non-compliance. So you can reach out to us. You can reach out to your preferred tax team and get that sorted out as soon as possible. Okay.
I see some private messages.Okay. I just moved to Saudi Arabia. What benefits are available to filing from abroad to recount for asking that question? So I’m assuming that you moved to Saudi as an employee, as opposed to an employer. If you move as an employee and you’re setting up your own company, please refer to the points that I made previously. And again, if you came in late, don’t worry, this is being recorded and you can play it back from either YouTube or the website or one of the many podcast platforms we’re going to publish it in all of those. And you can see what we discussed earlier on disclosing your company depending on your shareholding. Right? So I’m going to assume that you’re an employee, right? So the biggest benefit I think, and most people, most of you would agree with me of that’s available to us persons who are employees working outside of the U S is under code section nine 11, which is the foreign earned income exclusion. So what that allows you to do is to exclude the mountain moves, inflation, inflation, right? That’s another controversy, but the amount moves each year with inflation. And they ‘re determined by the revenue every year. So for 2021, which you are filing for in 2022, I think it’s around $112,000. So basically the first hundred and 12, plus you have your standard deduction. And so let’s say you’re married, filing jointly. That might be another 24, 20 5,000. So let’s say a hundred. And you get a housing deduction as well as a standard deduction. So let’s say all in, maybe it’s 150,000. So roughly speaking, I’m just being rough with the numbers now. So let’s say it’s the first hundred and 50,000 of your earned foreign earned income exclusion. So this is your earned income, which will be, it’s still going to be disclosed to the IRS and that form 25 55, but it may not be taxable. So it’s declared, but it’s not taxable. And that’s probably the biggest benefit and the best benefit that you’re going to get as a US taxpayer outside of the US. So you’re going to look when you’re speaking with your advisors, you’re going to make sure that they give you the, that you enjoy the benefit of that section nine 11 foreign earned income exclusion. So that’s the main benefit that you would have as someone finding from outside of the U S okay. Hope that helps you to read the next question. So Luca is asking, is there any way to optimize the taxation of dividends from the U S companies to reduce its 30% withholding due to the missing DTA between the US and the UAE DTA double tax treaty, or a double tax agreement between the US and UEA (we talk more about it in article about US tax UAE). I’m assuming Luca that you are not a US person, because if you are a US person and they do with a whole 30%, you should tell them that you are a US person. And it goes back to the point that I made earlier and responding to someone else that you should be giving them a W nine. If you are a US person, which is close to you, your social status, or if you’re working through an entity, your EIN, and you confirm to them, Hey, I am a US person do not withhold, just get me gross. And when I’m doing my tax return, I’m going to treat it right. So that’s if you were a US person if you’re not a US person and you, and you’re right, there is no double chance agreement with the UAE. Then there’s no way normally of reducing the percent withholding so dividends from US companies. So it falls into treatment. That’s called <inaudible> fixed determinable annual and periodic. So payments that are deemed to fall under Aftab, which would include your dividends, your interests, maybe royalties, basically what we consider passive income, generally speaking, I’m sorry, but it’s going to be subject to 30% withholding. And if you live in a non treaty jurisdiction, there’s very little, if anything you can do, there’s nothing you can do to reduce it. So I’m sorry, but I hope that answers your question. Okay. I have another question. Also, I deal with stocks. Most of the time I sometimes buy and sell. Do you think if I leave the money invested in don’t liquidate, it’s better than liquidating when markets are high, what impact did it have on my tax returns? So I’m assuming that you are a US person. You are us, taxpayers. So you’re either a US citizen or a green card holder, or you’ve triggered a substantial presence, right? So U S taxpayers, if you buy and sell, blah, blah, blah, blah you know, you need a liquidity event, right? So if it is so to your point, yes, if it is that you are not going to sell your shares, then ordinarily speaking, I’m assuming, because we spoke about prefixes and stuff like that in one of the previous responses. But if you’re just a shareholder in publicly traded equities, a direct shareholder, then you do not trigger ordinarily. You should not trigger P-Funk status. And as long as you don’t sell, yeah. I mean, there’s no liquidity event. Therefore there should be no taxes due if it is that they are dividend the Ealing stock though, then that tax will either qualify dividends or ordinary tax rates, depending on what the nature of the investment is. But yeah, it would be if you leave the money invested, it should not trigger any tax consequence, depending on what it is. And especially if it’s foreign investment, so you don’t get 1099, you may need to take special care, making sure that everything is properly disclosed on your returns. Because remember we said that the US is so counter-intuitive that international tax rules in the US are so counter-intuitive, it’s about proper disclosure, proper disclosure, as opposed to payment. So make sure if you’ve invested in any publicly traded shares and any of the gulf of any privately held companies in the Gulf area, make sure that you work with your advisors to ensure that it is properly disclosed in any tax returns. I hope that answers your question. Next one more context. I’m an Indian citizen with a green card living in the UAE, but I could not travel to the US on 20, 20, and 2021. I finally got my green card reactivated and traveled to the US in 2022. Right? Okay. So consider a green card. A green card is kind of like a re-entry permit. Look at it like that. So my point is that even though your green card may have expired, or you may have lost it as long as you didn’t properly surrender it to the competent authority. So for example, at an embassy or someone CBP, customs, and border protection, and they give you an I four 70, did not properly surrender that card. You remain a US taxpayer, even if it’s lost, even if it’s stolen, even goes to the washing machine, I’ve seen them a lot. I’ve seen the green cards go through a washing machine, decline, and bring them to us. So we’ve seen them all. So regardless of this, this, the condition, or the expiration of the physical card, you are still a US taxpayer. So yes, you need to make sure that you’re up-to-date with your taxes. And that may include either going through the voluntary disclosure, which we discussed earlier for someone whose non-compliance was willful, or the streamline, which we discussed earlier for someone whose non-compliance is deemed to have been non-willful. I hope that helps. Okay. So yes. Luka you clarified, so, yeah. Okay. Fine. Okay. Right.
So I’m just flipping through the other questions again, if you have questions that you didn’t get a chance to submit in advance, just, just type them in below. And we get to them and the order in which we received it, idiot, from 54. So someone I, that you’ve given up your green Kati, intends to give up your green card. Right? Okay. So you’ve given up your green card. Okay, fine. We work with probably four or five clients every month that give up their green card or, or give up their passports because for whatever personal reasons, they no longer wish to, at least from our point of view, to be part of the U S tax system, which is, which is fine. The question is you. So you gave up your green card, which is normal, but you did not complete an idiot 54. So this is like a form. I call it the goodbye form. So when the IRS sees it as part of it, of your tax submission, they know that, Hey, this person is on their way out. They’ve either given up their passport and got a CLN, a certificate of loss of nationality, or they’ve given up their green card and they got the I four seven. So they’re on their way out. So the question is, you’ve done it, you’ve given up your green card, but you did not prepare properly to submit an idiot 54, which is the expatriation return. What happens are you still subject to our taxes? The good news is that you should not be subject to US taxes, but there are some programs where you can seek relief for not having done 1854. The biggest problem that you may face is that you may be considered a covered X-Box because ordinarily, you’d be, trigger-covered ex-pat status. If ordinarily, if your net assets, net, so assets minus liabilities, worldwide assets, including your condo and, and Dubai. So we will have wide assets exceeding $2 million. So the net of liabilities, if it exceeds $2 million, you’d be considered covered. FBAR is a covered expatriation ex-covered expatriate, I guess, or if it is that your tax liability for the preceding five years on average had exceeded, I think it’s like $172,000 or something. So you’ve, you’ve had too high tax bills, and this would be a status which can, you can trigger as a US citizen on the way out, or if you were a long-term permanent resident. So just having a green card and giving it up and hitting one of those two thresholds doesn’t necessarily make you a covered expat. But if you will, a long-term expat. So you held that green card for eight years, which depending on when you got it in the first place, and when you gave it up could be as few as six years, because of the way the tax years work. But anyway, generally speaking, let’s say, let’s say for seven or eight years, then you may trigger. Then you would be conscious of the possibility of triggered, triggering, covered expat status. So you, we, whoever you sit with need to have that conversation with you. But the bottom line is let’s assume that you were a long-term permanent resident, just by failure to form the 54. It should not leave you explosive to tax on your worldwide income. You still pay tax to new us source income, just like everybody else, any rental property in California or whatever it is. Yes. You’re going to pay taxes on that, but you’re not going to be taxed on your worldwide income the way you were when you were a lawful permanent resident of the U S bottom line speech, and advise again that 88 54 done as soon as possible. So, okay. Any of the questions? Yeah. So this is one of the previously submitted questions I’m getting to now, this is one on crypto. So I kid you not, I get probably like three, or four emails every week, or being contacted people, contact us through our website at HTJ dot attacks. And they asked me about crypto investments. And specifically, they invested in a crypto exchange either in Singapore or Hong Kong, Malaysia, or their non-Americans who have invested in a crypto exchange. It’s supposed to be in the US not ones like crack-in or Coinbase or one that everyone has heard of or some exchange that I haven’t heard of. They’ve made gains. They’ve done well. They feel glad that you’re doing well. And for some reason, the exchange is asking you to prepare the taxes, but they can’t take the taxes from your gains. They want you to make, they want you to deposit or transfer more, either more Bitcoin or more tokens for them to release the gains to you. Again, you know, I don’t wanna make any sweeping statements, but that is not usual. That is not normal. I don’t want to use the word scam because that may be inappropriate, but I would double-check that with a tax advisor. The cases that I’ve seen, almost all the cases I’ve seen, appear to be very irregular. So the bottom line is that you’ve invested in exchange. You’ve invested in some trading platforms you’ve done well. And they’re asking you to transfer more for, suppose, a tax liability. Those that have invested in so-called exchanges in the US and they’ve given, they’ve sent me the emails that we had, or the communication that we’ve got from the platform. And it codes N a US agency that I do not know to exist. And if you drop it in Google, it does not exist. So, you know, I’m just saying, I’m not telling you what to do. This is not advice, but I think you should sit with a professional and go through whatever it is that they’ve sent you in terms of the contract or whatever, because it is highly and reg unusual for you to be asked to pay taxes in advance of the event in advance of the, of cashing in, or get oh, liquidating, whatever the portfolio is that you may have. So just double-check to make sure it is my point, especially in jurisdictions like Singapore, Hong Kong, and Malaysia, which have no capital gains taxes in the first place. So it just seems to be highly unusual, but it happens all the time. I’m sorry, but that’s, that’s the truth. Right. Okay. Any other questions or comments? And let me just have a quick look at the guys on Facebook to see if anybody’s saying anything. Okay. So you guys are quiet. That’s good. Right?
And I’m back here on zoom. Yes. I think I’ve dealt with all the private messages that I got. I’m just scrolling back up. So Mark is asking, can you comment on foreign health, corporate DB, pensions, DB pensions, not to show what would you mean or defined benefit pension plans? Okay. All right. So again, you know, one of the benefits or one of the interesting parts of working outside of the US is that you get access to various financial products, right? And, you know, you’d be offered, especially because there are many enthusiastic financial advisors promoting products that may not be compliant or compatible with the U S taxes. And what do I mean by that? They may appear on the surface to be a pension product or an insurance product. But when you investigate it and you look at it from a US tax perspective, the treatment is quite different from what you would have expected. Okay. So the first thing is that most of these products are not US qualified, meaning that you don’t get to reduce your taxable income. So it’s not like putting it in a 401k or something in the US using a US platform with a US custodian, right? It’s not going to reduce your taxable income, ordinarily speaking, it’s not gonna reduce your taxable income. That’s the first, that’s the first thing, which is kind of neutral. Maybe you knew that, maybe expected it. Then the other piece of news is that remember earlier when we were speaking about prefixes or passive and foreign passive foreign investment companies, we, you know, again, this is being recorded. So if you came in late, you can play, you can just play the video over from the beginning, right? So just be aware, that you should sit with an advisor to go over those types of investments before you proceed with them, or if you have already done. So it’s, you know, that’s, that’s later than never sitting with your advisor, go over that pension product, go over that insurance product, because it may be a prefix. What do I mean by that? The U S tax consequences that we discussed earlier, recall that it means that you may be subject to what we call holding gains. So, you know, you may, even though you haven’t taken a distribution from it or whatever, you may still be subject to taxes on the returns that come, you know, the dividends, the interest, whatever it is, it’s an investment product, right? So you may not get to defer recognizing those gains until retirement in the first place. That’s number one. And then second to that, the growth in the portfolio itself, I’m not talking about distributions in terms of interest or dividends, but the portfolio growth that capital gains may still be taxable to you as holding gains under the regime, as we, as we mentioned earlier. So I know that’s not good news, but find your preferred US-qualified advisor, sit with him or her and go through the investment that you made, or the investments that you intend to make, to understand what the tax consequences are and, and get, and get set on trying to mitigate that as soon as possible. So hope that helps next to masstige from, okay. I don’t know why. Okay. What tax liability is on a non-US person trading on US markets, for example, NASDAQ via a broker like interactive brokers? I read somewhere that capital gains are not taxed, but dividends are okay. Yes, you’re correct. We touched on that earlier when we talked about forms. So in this case, you may be asked to complete a form like a w eight Ben or Ws, Ben E if you using like one of your free zone companies to do the investment if you’re doing it in your name and my BMW, it Ben and yeah, capital gains should be tax-free ordinarily, but dividends and interest would be tax. There’ll be 30% FDIC. Withholding adapt stands for fixed determinable annual and periodic. So those types of distributions to you are subject to 30% withholding. It can be reduced by treaty. So if you are in a treaty jurisdiction, obviously as someone pointed out earlier, the UAE doesn’t have a double tax agreement with the U S but other jurisdictions nearby may. So if you’d done the salary of your tax resident, one of those, you may be subject to the reduced holder withholding. It can go down from 30 to 20, to 15 to 10, depending on where you are and where the treaty enforces, but you are correct. Capital gains are tax-free dividends at 30% withholding. Next question. Secondly, what is the age? A US citizen child has to start filing taxes as both of the parents are non-Americans. When that child starts making money. So ordinarily, that will be after school, right? So after you go through high school or college or university, then you get a job or you start a business and then you pay taxes. But you know, some kids are talented, right? They may be an entertainer or a child athlete, but once that child starts earning money, you may want to have a conversation with a US advisor as to whether this income that your child has generated is taxable to the U S so, so to answer your question again, as soon as that child or that person is earning money, whether it be as a minor or after education as an adult. Okay. I hope that helps.
I’m just going to do a quick check on the other side to see about any questions that I may have missed, nothing on that side, nothing on this side. So we’re coming up to an hour now. It was great to see such a great crowd today. I enjoyed your questions. Oh, we have a last-minute submission. Okay. This is the last one. Okay. All right. Greetings. You keep getting disconnected. That’s okay. Pear, glad to have you. I’m from the US working as a Saudi teacher starting in 2019. I’m not sure what to do about my taxes and blah, blah, blah, dealing with real estate and stock investments. Yep. Feel so, even though it may not be taxable in Saudi, it is taxable in the US so you still need to file your tax returns like you normally did. As mentioned earlier, and again, if you’ve come in, I know you, your connection has been dropping. So you can play this video. This video is being recorded. They’ll be available on YouTube, and our website. It should get our tax by tomorrow, and eventually, we’ll publish it on about 23 podcast platforms, wherever you get your podcasts, you’re going to get it. Okay. So don’t worry about it. And you can play it back from the beginning, and you can see what we said about section nine, 11 being the best benefit available to us persons outside of the U S so a substantial part of maybe up to roughly, I’m just ballparking it depending on your situation. I gave it to my filing jointly. So you get the standard, a Dutch Shen plus housing plus utility bills. So maybe the first hundred and 50 Kev us of your income, maybe it may be reportable, but it will be taxable to the U S so you file your tax returns. Look for that section nine 11 benefits on form 2555, if it is that you have your investments. And in terms of rental property, that remains taxable as business as usual, whether it be back in the US which is easy, or outside of the U S if you’d make, and if you’ve been making investments outside of us, which is always good, you know, get your investment game on, but it’s all taxable to the US so, so keep that in mind. If you want to work with us, feel free to reach out to us via our website, HTJ.tax, and you know, I, one of our team or colleagues, we’ll be happy to help you work with you. Okay. And that is it. Thank you for your time. Appreciate it. We do these live streams every week, and, you know, you can visit our website. We have over 2000 articles, free of charge, key things to consider for international tax, as well as over a thousand videos on our YouTube channel and our podcast platforms. Have a good morning, day evening, depending on where you are, and we’ll see you next time. Bye bye.
OUTRO:
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