Every year, more and more US citizens renounce their citizenship, and green card holders give up their visa status. These actions could well trigger a tax problem: the US Expatriation Tax Regimes. The Expatriation Tax Regimes has two significant underlying components; the “Exit Tax” (IRC s.877a) and the “Inheritance Tax” (IRC s. 2801).
Most have heard of the Exit Tax. Few have heard that the Heart Act added a new federal transfer tax, which imposes an “Inheritance Tax” on certain gifts or bequests (testamentary dispositions) made by a “covered expatriate” to U.S. recipients. The Inheritance Tax is payable by the recipient of the gift or bequest, not the expatriate. There is no expiration of the potential applicability of §2801. Thus, a gift or bequest made by a covered expatriate several years (or longer) after expatriation could trigger the tax.
The Inheritance Tax is imposed in addition to the mark-to-market tax paid by the covered expatriate upon exit. Currently, the tax rate imposed by §2801 is 40% of the value of the gift or bequest.
Now let’s return to the Exit Tax. The US Expatriation Tax Regime Exit Tax rules impose an income tax on certain people called “Covered Expatriates” who have made their exit from the US tax system. The defining feature of the Exit Tax is that all worldwide appreciated assets are treated “as if” they are sold on the day before citizenship or resident status is terminated. If applicable, net capital gain (after an exclusion amount of roughly $821,000 in 2023) from the deemed sale is taxed when the expatriate’s final US tax return for the year of expatriation is filed.
There are other rules that accelerate income for a person leaving the United States. These other rules apply to items such as IRAs, pensions, deferred compensation plans, and beneficial interests in trusts.Here’s how we can help you
1. For a fee, we can review your last 5 years of tax returns to ensure that there are no outstanding issues that would jeopardise your expatriation
2. We can help you determine if you are indeed a covered expat, help you calculate your present exit tax exposure and make recommendations on how to reduce it
3. If you are indeed a covered expat, we can work with you to put measures in place to reduce any exit tax exposure.
Contact me on firstname.lastname@example.org
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Are you a covered expat?
Long-Term Permanent Resident (Green-Card Holder) — An expatriated green-card holder is subject to §877A as a covered expatriate only if a long-term permanent resident prior to expatriation. A long-term lawful permanent resident is a person who has been a green-card holder during eight of the previous 15 years prior to expatriation. If a green-card holder expatriates before this eight-of-15-year test is met, §877A does not apply. A U.S. resident alien (under the U.S. substantial presence income tax test) is not subject to the §§877 or 877A tax if the resident has no green card.
Statutory Tests — Section 877A applies to only covered expatriates who meet any one of the three tests, set out in §877(a)(2)(A)-(C).
1) The Net Worth Test: Having a net worth of $2 million or more on the date of expatriation. The $2 million threshold considers all assets worldwide. The expat is considered to own any interest in property that would be taxable as a gift under Ch. 12 of the code (i.e., the gift tax provisions) if the individual was a citizen who transferred that interest immediately prior to expatriation.
2) The Average Annual Income Tax Liability Test: Earning an average annual net income tax for the five years ending before the date of expatriation of more than a specified amount, adjusted for inflation ($171,000 for 2020). An individual who files a joint tax return must take into account the net income tax reflected on the joint return.
3) Failure to Certify Tax Compliance: Failure to certify satisfaction of federal tax compliance to the Secretary of Treasury for the five preceding taxable years or failure to submit such evidence of compliance as “may be required.” Individuals without considerable assets or income may nonetheless become covered expatriates by failing to certify tax compliance.
Special Deferral Rules of §877A(b) — The exit tax deemed sale or distribution may leave insufficient liquidity to cover the tax, as no actual sales proceeds are available. Under certain circumstances, payment of the tax may be deferred until an actual sale of the property (or death). Section 877A(b) provides detailed rules permitting a covered expatriate to defer payment of the mark-to-market tax (on a property-by-property basis). Payment is tolled until the property is actually sold or exchanged, death, or the security required to make the deferral election fails to meet statutory requirements (whichever is earlier). To make the deferral election, the covered expatriate must provide “adequate security” and agree to pay statutory interest on the deferred tax. If the covered expatriate elects deferral, gains deferred are based on the value of property as of the taxing date (i.e., as of the day prior to expatriation).
Under the §877A mark-to-market regime, a covered expatriate with an interest in a nongrantor trust (or certain deferred compensation assets) must annually file Form 8854. Form 8854 reflects distributions from the trust. The filing requirement appears to have no time limit under IRS Notice 2009-85. The notice also affirms that a covered expatriate must file a Form 1040-NR in the event he or she earned taxable income and U.S. income taxes are not fully withheld at the source. As foreign institutions or persons will likely not withhold at the source (under §1441), this requirement usually creates a mandatory filing obligation for covered expatriates. Lastly, Notice 2009-85 affirms that a covered expatriate with a beneficial interest in a nongrantor trust (or deferred compensation asset) must file Form W-8CE (which identifies the payor). This filing is required on the earlier of the date of the first distribution from the trust (subsequent to expatriation) or 30 days after the date of expatriation.
Potential Planning Strategies
• Outright Gifts to Spouse and Others — The proposed expatriate may gift assets sufficient to reduce his or her net worth below the $2 million net worth test (for characterization as a covered expatriate). For example, before expatriation, an expatriate may use the §2503(b) annual exclusion (currently $15,000 per donee) to make non-taxable gifts or, alternatively, make larger gifts by utilizing his or her unified estate and gift tax credit.
Gifts should be made at least three years prior to expatriation to avoid §2035, which adds the value of gifts made within three years of a decedent’s death (or deemed expatriation death) to the deceased’s taxable estate. Unless an exception applies,all gifts made during the three years prior to expatriation are not only included as assets subject to deemed sale, but are likely included in calculating the inheritance tax. A potential expatriate may also make unlimited tax-free gifts to a U.S. citizen spouse (prior to expatriation). Interspousal gifts are generally not subject to the three-year “clawback” rule of §2035. If, however, the recipient spouse is also expatriating, the marital gifting strategy will function only if the recipient spouse avoids covered-expatriate status. Otherwise, the proposed transfers will subject the spouse to §877A.
For potential non-citizen covered expats (long-term green-card holders), another possible strategy (to avoid U.S. transfer taxes on foreign assets) is to make transfers after permanently departing the U.S. (but before actually expatriating). Although the green-card holder would remain a U.S. resident for U.S. income tax purposes, domicile (for estate and gift tax purposes) may be moved outside the U.S. Transfers made while a non-resident, non-citizen for estate and gift tax purposes are not subject to U.S. transfer taxes, unless the property gifted is tangible and located in the U.S.[ Under such circumstances, the mark-to-market tax regime may arguably be avoided on assets gifted (three years before expatriation) and completely avoided if the gifts sufficiently reduce new worth.
• Gifts to Trusts/General Transfer Tax Strategies — As a permanent legal resident (green-card holder), the future covered expatriate (domiciled in the U.S.) may take advantage of a full unified estate and gift tax credit by implementing general U.S. transfer tax avoidance strategies before expatriation (three years before expatriation). These include utilizing valuation discounts for potential transfers, gifts to domestic irrevocable trusts, grantor retained annuity trusts, qualified personal residence trusts, intentionally defective grantor trusts (with the toggle-off switch), charitable lead trusts, charitable remainder trusts, etc.
• Use of an Expatriation Trust — As an alternative to outright gifts or other general estate tax-saving vehicles, a potential expatriate may fund an irrevocable (self-settled) trust for himself, his spouse, and descendants. Gifts to a properly structured “expatriation trust” may likely be used to lower net worth (to avoid the $2 million net worth threshold).
One strategy is to establish an expatriation trust, to reduce the potential expatriate’s net worth below the $2 million net worth test. The expatriation trust should be formed as an irrevocable nongrantor discretionary U.S. domestic trust in a state permitting self-settled discretionary trusts. The expatriation trust should be drafted to complete the transfer for U.S. transfer tax purposes (harvesting the settlor’s unified credit). The trust must also qualify as nongrantor for U.S. income tax purposes (with trust income taxed to the trust). To avoid potential inclusion under §877A, the potential expatriate should also release any powers over trust assets (i.e., powers of appointment). As this vehicle remains a domestic trust under §7701, §684 (deemed mark-to-market sale) would not apply to the transfer of assets into the trust. The potential expatriate may retain the ability to remove and replace independent trustees. Following the passage of three years from funding, §877A would not apply to the assets held in trust. Moreover, future distributions from the expatriation trust to U.S. beneficiaries (or the expatriate) would also avoid the §2801 inheritance tax .
• Use of Domicile Planning — Alternatively, as discussed above, the non-citizen settlor may utilize foreign domicile transfer tax planning before expatriating. While maintaining U.S. income tax residency, the proposed expatriate establishes domicile outside the United States. Transfers of non-U.S.-situs assets are then not subject to U.S. transfer tax. Moreover, the transfer of certain U.S.-situs intangible assets avoids U.S. gift tax (including gifts to U.S. donees). For a resident alien with substantial non-U.S. assets and U.S.-situs intangibles, U.S. transfer tax may be avoided. Following the passage of three years from such transfers, §877A does not apply the deemed sale rule to the assets transferred. This strategy may also permit the potential expatriate to completely avoid the exit tax (if transfer brings his or her net worth below $2 million).
• Sale of Personal Residence — The sale of the expatriate’s personal home (prior to expatriation for cash), removes the value of the home from the $2 million net worth test. The actual sale prior to expatriation reduces net worth and avoids taxable gain. Note that, in the event of a deemed sale of the homestead upon expatriation, the popular §121 income tax exclusion (excluding gain from the sale of a personal residence) is likely not available to a covered expatriate.
U.S. citizens and long-term residents must carefully plan for any proposed expatriation from the U.S. abandonment of U.S. citizenship or long-term residency triggers both the exit tax and the inheritance tax. The current form of exit tax deems sold all assets held worldwide by the expatriate. Tax may be potentially avoided by limiting income and net worth (through gifts, transfer tax avoidance strategies, and sale of the principal residence).
Benefits of the International Lifestyle: Who Should Go International and Why?
There are numerous benefits to living outside of the USA. Here are a few of the most common:
- Affordability: The cost of living in many countries outside of the USA can be significantly lower. This provides a major advantage for those seeking to save money or enjoy a more comfortable lifestyle.
- Healthcare: In certain countries, healthcare is either free or very affordable. This can be a major benefit for those seeking high-quality medical services at a lower cost.
- Education: The quality of education in some countries outside of the USA can be much higher. This presents a significant advantage for those looking for top-notch education options for their children.
- Safety: Some countries boast much lower crime rates compared to the USA. Living in such places can offer a major benefit in terms of safety and a more peaceful environment.
- Culture: Residing in another country provides a great opportunity to experience a different culture and way of life. This enriching experience can help individuals grow as individuals.
- Travel: Living in another country offers the chance to travel to new and exciting places. This is an excellent way to explore the world and immerse oneself in different cultures.
Of course, living outside of the USA also comes with certain challenges:
- Language barrier: If you don’t speak the language of your new country, communication, and navigation may be difficult.
- Culture shock: Moving to a new country can be a culture shock, and adjusting to the unfamiliar way of life can take some time.
- Homesickness: It’s normal to miss your home country and your loved ones when living abroad. In conclusion, living outside of the USA offers many benefits, but it’s essential to carefully weigh the pros and cons before deciding to move.
Let’s Talk about the Future of the US
The future of the USA is a topic of much debate. Some experts believe that the country is facing a number of challenges that could prevent it from maintaining its status as a global superpower. In contrast, others believe that the USA has the potential to continue to be a leading force in the world.
Here are some of the factors that could contribute to a bright future for the USA:
- Strong economy: The USA has the world’s largest economy and is a major exporter of goods and services. This strong economy provides a foundation for future growth and prosperity.
- Technological innovation: The USA is a leader in technological innovation, which drives economic growth and creates new jobs. The USA is also a major center for research and development, which will help ensure that the country remains at the forefront of innovation in the future.
- Diverse population: The USA is a diverse country, with people from all over the world. This diversity is a source of strength and helps make the USA a more innovative and dynamic country.
- Strong military: The USA has the world’s most powerful military, and this military provides the country with a strong deterrent against aggression from other countries. The military also plays a role in promoting US interests around the world.
However, there are also some challenges that the USA will need to overcome.
What Kind of Entrepreneurs Can Benefit from the US Market?
Many types of entrepreneurs benefit from being in the USA. Here are some of the most common:
- Tech entrepreneurs: The USA is a global technology leader, offering numerous opportunities for tech entrepreneurs. It boasts a large pool of skilled tech workers, and several venture capital firms are willing to invest in tech startups.
- Lifestyle entrepreneurs: The USA has a strong entrepreneurial culture, providing abundant opportunities for lifestyle entrepreneurs. These individuals start businesses that allow them to live the lifestyle they desire. The country offers a number of tax breaks and other incentives for small businesses, making it an ideal place for lifestyle entrepreneurs to start their ventures.
- Social entrepreneurs: The USA has a rich tradition of social entrepreneurship, presenting many opportunities for social entrepreneurs in the country. Social entrepreneurs are people who start businesses with the goal of solving social problems. The USA has several foundations and other organizations that support social entrepreneurs, making it a favorable place for them to start their businesses.
- Entrepreneurs with global ambitions: As a global superpower, the USA has a strong network of businesses and organizations worldwide. This makes it an excellent place for entrepreneurs with global ambitions to start their businesses. Additionally, the USA has a number of trade agreements that facilitate the export of goods and services to other countries, making it an attractive choice for global-minded entrepreneurs.
Overall, the USA is a great place for entrepreneurs of all types. The country’s strong entrepreneurial culture, abundant pool of skilled workers, and numerous resources and opportunities make it a fertile ground for entrepreneurial success in various fields.
What about the downsides of flag theory?
Flag theory, centered around diversifying one’s lifestyle internationally, offers numerous advantages, such as reduced taxes, decreased bureaucracy, and increased personal freedom. However, it also carries certain drawbacks, including:
- Cost: Traveling the globe and maintaining multiple residences can be expensive.
- Loneliness: Embracing flag theory might distance individuals from their conventional communities and families, leading to feelings of isolation.
- Complexity: Flag theory can be complex to implement and manage.
- Legal risks: Potential legal risks are associated with flag theory, such as tax evasion and violating immigration laws.
Ultimately, whether or not flag theory is right for you depends on your individual circumstances and goals. If you are considering flag theory, it is important to weigh the advantages and disadvantages carefully before making a decision.
Here are some additional disadvantages of flag theory:
- Identity and belonging: When you’re constantly moving around, it can be hard to feel like you belong anywhere. This can be especially challenging if you have family or close friends who cannot travel with you.
- Limited access to essential services: Not being a legal resident in any country might hinder access to crucial services like healthcare and education, particularly for individuals with chronic illnesses or disabilities.
- Culture shock and homesickness: Relocating to a foreign country, even temporarily, can be emotionally taxing, causing culture shock and homesickness, which might impede the adjustment process.
If you’re considering flag theory, knowing the potential disadvantages and advantages is important. Flag theory can be a great way to live a more flexible and fulfilling life, but it’s not for everyone.
Key Considerations for Choosing the Right Country to Set Up Shop
There are many factors to consider when deciding which country to move to. Here are some of the most important ones:
- Your personal preferences: What are your interests and lifestyle goals? Do you want to live in a big city or a small town? Do you prefer a warm climate or a cold climate?
- Your career: Evaluate the job opportunities in the country you’re considering. Do you need a visa or work permit?
- Your family: If you have a family, you must also consider their needs. Are there good schools in the country you’re considering? Is healthcare affordable?
- The cost of living: How much will it cost to live in the country you’re considering? Will you be able to afford housing, food, transportation, and other expenses?
- The immigration process: How difficult is it to immigrate to the country you’re considering? How long will it take? How much will it cost?
- The culture: What is the culture like in the country you’re considering? Are you comfortable with its language and customs?
- Safety: How safe is the country you’re considering? Is there a risk of natural disasters or political instability? Once you’ve considered all of these factors, you can start to narrow down your options.
Here are some additional tips when deciding which country to move to:
- Talk to people who have already moved to the country you’re considering. They can give you valuable insights about their experiences.
- Visit the country if you can. This will allow you to experience the culture and see if it’s a good fit for you.
- Don’t be afraid to experiment. If you’re unsure where you want to live, try moving to a few different countries before deciding.
Deciding which country to move to is a big decision, but it can be a very rewarding one.
Why Choose Dubai as Your Base?
Here are some of the benefits of moving to Dubai for US expats:
- Tax-free income. Dubai does not have personal income tax, which can save you significant amounts of money.
- Low cost of living. The cost of living in Dubai is lower than in many other major cities, such as London or New York.
- Excellent job opportunities. Dubai is a major business hub, and there are many opportunities for expats to find lucrative jobs.
- High quality of life. Dubai offers a high quality of life, with excellent healthcare, education, and infrastructure.
- Safe and secure environment. Dubai is a very safe city, with low crime rates.
- Multicultural environment. Dubai is multicultural city, with people from all over the world living there.
Of course, there are also some challenges to living in Dubai, such as the hot climate and the strict laws. However, for many US expats, the benefits of living in Dubai outweigh the challenges.
If you are considering moving to Dubai, I recommend doing some research to learn more about the city and the expat experience.
Key Factors for Choosing Where to Incorporate a Company?
There are numerous factors to consider when deciding where to incorporate a company. For most people, a key factor would be the location of key decision-makers and the banking regulations. Here are some other factors to consider:
- Taxes: The tax laws of the country you choose for incorporation will significantly impact your company’s bottom line. Some countries have very low corporate tax rates, while others have high rates. You’ll also need to consider the tax implications of doing business in other countries, as your company may face double taxation.
- Regulations: The regulatory environment in your chosen country of incorporation will also affect your business. Some countries have strict regulations, while others have a more relaxed approach. Ensuring your company’s compliance with all relevant laws and regulations is essential.
- Ease of Doing Business: The ease of conducting business in your chosen country is crucial. Some countries have efficient and transparent government processes, while others are more bureaucratic. Ensuring that your company can easily meet all legal requirements is important.
- Culture: The culture of the country you select for incorporation will also impact your business. Some countries have business-friendly cultures, while others do not. You’ll need to ensure that your company’s culture aligns well with the local culture.
- Personal Preferences: Finally, you should also consider your personal preferences when deciding where to incorporate a company. Some individuals prefer incorporating in countries with similar cultures, while others are more open to new experiences. You’ll need to determine what matters most to you and select a country that suits both you and your business.
After considering these factors, you can begin to narrow down your options. Here are some additional tips for choosing where to incorporate a company:
Consult with a lawyer or accountant specializing in international business. They can provide valuable insights into the tax and regulatory implications of incorporating in different countries.
If possible, visit the country. This will allow you to experience the culture firsthand and determine if it’s a good fit for you.
How to Choose Where to Bank?
Here are some factors to consider when choosing which country to open a bank account:
- Your residency: Some countries only allow residents to open bank accounts, while others allow non-residents as well. If you’re not a resident of the country you’re considering, you’ll need to check the residency requirements.
- The country’s financial stability: You’ll want to choose a country with a stable financial system. This will help to protect your money in case of economic instability.
- The country’s tax laws: You’ll need to consider the country’s tax laws before you open a bank account. Some countries have very favorable tax laws for foreigners, while others have less favorable tax laws.
- The country’s banking regulations: You’ll need to ensure that the country you’re considering has banking regulations that align with your needs. Some countries have very strict banking regulations, while others are not as strict.
- The country’s culture: You’ll also want to consider the country’s culture before you open a bank account. Some countries have cultures that are more conducive to banking, while others are less so.
- The country’s language: If you don’t speak the language of the country you’re considering, you’ll need to ensure that the bank offers services in your language.
Once you’ve considered all of these factors, you can start to narrow down your options.
Most importantly, Talk to a lawyer or accountant who specializes in international finance. They can give you valuable insights into the tax and regulatory implications of opening a bank account in different countries.
What About the Future of Golden Visas?
The future of golden visas is uncertain. On one hand, there is an increasing demand for these schemes from wealthy individuals who are seeking to secure residency or citizenship in other countries. On the other hand, there is growing scrutiny of these schemes from governments and regulators who are concerned about their potential for abuse.
In recent years, several countries have eliminated or tightened their golden visa schemes. For instance, the UK, Portugal, and Spain have all implemented changes to their schemes in an effort to crack down on money laundering and other forms of financial crime.
The future of golden visas is likely to depend on how governments and regulators respond to these concerns. If they are able to effectively address these concerns, then golden visas could continue to be a popular option for wealthy individuals. However, if they are unable to address these concerns, then golden visas could become less appealing and less widely available.
Several factors could influence the future of golden visas, including:
- The level of demand for these schemes from wealthy individuals.
- The actions of governments and regulators to address concerns about money laundering and other forms of financial crime.
- The economic and political climate in different countries.
- The availability of alternative investment migration schemes.
It is too early to predict what the future holds for golden visas. Nevertheless, it is clear that these schemes are likely to remain a contentious topic for some time to come.
Here are some of the advantages and disadvantages of golden visas:
- They can provide a pathway to residency or citizenship in another country.
- They can offer access to certain benefits, such as education, healthcare, and travel.
- They can be a way to diversify investment portfolios.
- They can be expensive.
- They can involve a complex application process.
- They can be subject to change at any time.
- They can be perceived as a means to buy residency or citizenship.
Ultimately, the decision of whether or not to apply for a golden visa is a personal one. Numerous factors should be considered, including individual circumstances, financial goals, and risk tolerance.
Let’s Explore Investment Migration vs Non Investment Migration
Investment migration and noninvestment migration are two distinct types of immigration programs that offer individuals the chance to live and work in foreign countries.
Investment migration programs allow individuals to gain residency or citizenship by making a significant investment in the host country. This investment can include real estate, businesses, or government bonds.
On the other hand, noninvestment migration programs provide residency or citizenship based on meeting specific criteria. These criteria might involve having a job offer, being married to a citizen of the host country, or having family members already living there.
There are several advantages to investment migration:
- It can be a faster and easier way to obtain residency or citizenship compared to noninvestment migration.
- Investment migration can provide access to benefits like education, healthcare, and travel.
- It can be a method to diversify investment portfolios.
However, investment migration also has its downsides:
- It can be costly.
- The application process for investment migration can be complex.
- Investment migration can be subject to change at any time.
- It can be seen as a way to purchase residency or citizenship.
On the other hand, noninvestment migration also has its pros and cons:
- Pros: It can be a more affordable way to obtain residency or citizenship compared to investment migration. The application process for noninvestment migration is generally simpler. Noninvestment migration is less likely to be seen as a way to buy residency or citizenship.
- Cons: It may take longer to obtain residency or citizenship through noninvestment migration. Noninvestment migration may not offer the same level of benefits as investment migration. Not everyone may be eligible for noninvestment migration.
Deciding whether to pursue investment migration or noninvestment migration is a personal choice. Various factors need to be considered, including individual circumstances, financial goals, and risk tolerance.
9% Corporate Tax A Sign of Things to Come in the UAE?
The introduction of a 9% corporate tax in the UAE is a significant change and could be a sign of more changes to come. The UAE has long been a tax-free haven, and the introduction of a corporate tax could be seen as a move towards a more conventional tax regime. It is too early to say what the long-term implications of the introduction of a corporate tax in the UAE will be. However, it could be a sign of more changes to come.
Here are some of the potential changes that could come as a result of the introduction of a corporate tax in the UAE:
- The UAE may introduce other taxes, such as a personal income tax or a value-added tax.
- The UAE may make changes to its tax laws, such as making it easier for businesses to comply with the tax regime.
- The UAE may become less attractive to businesses and individuals who are looking for a tax-free haven.
It is important to note that these are just potential changes, and it is impossible to say what will happen. The UAE government has not yet announced any plans for further changes to the tax regime.
However, the introduction of a corporate tax is a significant shift, and there will likely be more changes to come in the future.
Let’s Talk About Choosing the Right International Tax Professional/Firm
Tips for Selecting the Right International Tax Advisor:
- Begin by considering your specific needs. What are your particular tax concerns? Do you require assistance with cross-border tax planning, compliance, or dispute resolution? Once you have identified your needs, you can start narrowing down your search for an advisor.
- Seek recommendations from your network. Ask your friends, family, colleagues, and business associates for suggestions regarding international tax advisors. This is an excellent starting point and provides insight into the experiences and reputation of different advisors.
- Conduct research. After obtaining a few names, research online and in industry publications. Look for advisors with experience in your specific area of need and a solid reputation. Examine their online publications to assess their qualifications.
Consider these factors when choosing an international tax advisor: Advisor’s experience. How much experience does the advisor have with international tax matters? Do they possess experience with the specific countries and jurisdictions that concern you? Advisor’s communication style. How does the advisor communicate? Are they easily understandable? Are they responsive to your questions?
By considering these factors, you can make an informed decision when selecting an international tax advisor.
Should you Opt for Low-Tier Tax Jurisdictions to Avoid New Transparency Rules?
Low-tax jurisdictions typically do not pose significant issues. However, exercise caution when dealing with low-tier jurisdictions of poor reputation, as they can present challenges. Several reasons contribute to this, including:
- Legal risks: Relocating to a jurisdiction with a poor reputation could expose you to legal vulnerabilities. Transparency is now an international initiative and reputable jurisdictions have established transparency measures.
- Banking challenges and risks: Banking becomes complex and risky since only lower-tiered banks may be willing to collaborate. Opting for a jurisdiction with a poor reputation could also expose you to financial risks, like asset loss or scams.
- Blacklisted jurisdictions or those on grey lists: These could lead to reputational risks for both you and your business. Moving to a jurisdiction with a poor reputation could damage your standing, potentially making it difficult to conduct business or obtain visas in other countries.
If you are considering moving to a different jurisdiction to save on taxes, you have several legitimate options available. Consulting a tax advisor is advisable to discuss your options and ensure compliance with all applicable laws.
Here are some legitimate options available to you:
- Move to a jurisdiction with a lower tax rate: Numerous jurisdictions worldwide have lower tax rates than the United States. However, it’s crucial to note that not all jurisdictions with lower tax rates are legitimate. Conduct research to confirm that the jurisdiction you are considering moving to has a solid reputation and allows compliance with all applicable laws.
- Utilize tax deductions and credits: Many tax deductions and credits are accessible. Consulting a tax advisor is recommended to discuss your options and ensure you are claiming all eligible deductions and credits.
If you are contemplating moving to a different jurisdiction, carefully consider all your options and weigh the associated risks and benefits before making a decision.
Let’s Talk About Asset Protection Strategies
Various strategies are accessible for safeguarding international assets. Some of the most typical strategies include:
- Asset Protection Trusts: These legal structures can shield assets from creditors and other claimants. They are typically established in offshore jurisdictions with favorable asset protection laws.
- Limited Liability Companies (LLCs): LLCs provide an alternate legal structure for asset protection. They offer limited liability protection, absolving owners from personal responsibility for LLC debts and liabilities.
- Offshore Banking: Offshore banking offers a possible approach to safeguarding assets from creditors and other claimants. However, it’s important to note that offshore banking can be complex and carries several associated risks.
- Asset Diversification: Asset diversification involves distributing assets across various asset classes and different jurisdictions. This strategy helps mitigate risks like market volatility and political instability.
- Privacy: Maintaining privacy serves as a critical asset protection tactic. Keeping your assets confidential makes it more challenging for creditors and other claimants to locate and seize your assets.
It’s important to note that there is no one-size-fits-all asset protection strategy. The most suitable strategy for you relies on your distinct circumstances and objectives. Consulting with an experienced attorney or financial advisor is recommended to explore your options and create a personalized asset protection plan.
Here are additional recommendations for safeguarding international assets:
- Conduct Research: It’s crucial to thoroughly research and comprehend the associated risks and benefits before implementing any asset protection strategy.
- Seek Professional Assistance: Obtaining guidance from an experienced attorney or financial advisor is vital if you’re contemplating an asset protection strategy.
- Practice Patience: Asset protection involves a complex and time-consuming process. Demonstrating patience and collaborating with advisors to create a tailored plan that suits your needs is essential.
Understanding the Value of Trusts vs. Foundations
A trust and a foundation are both legal entities that can be used to hold assets and distribute them for a specific purpose. However, there are some key differences between the two.
A trust is a legal relationship between three parties: the settlor, the trustee, and the beneficiary. The settlor is the person who creates the trust and transfers assets to the trustee. The trustee is the person who holds the assets of the trust and manages them according to the terms of the trust. The beneficiary is the person or entity who benefits from the trust.
A foundation is a legal entity that is created for a specific purpose. The foundation is typically funded by a donation from a private individual or organization. The foundation is managed by a board of directors, who are responsible for carrying out the purpose of the foundation.
The best choice for you will depend on your specific circumstances and goals. If you are considering creating a trust or foundation, you should consult with an experienced attorney or financial advisor to discuss your options.
Here are some additional tips for choosing between a trust and a foundation:
- Consider your purpose. What is the purpose of the trust or foundation? Is it for charitable or philanthropic purposes? Or is it for a more personal purpose, such as providing for your family after your death?
- Consider your beneficiaries. Who are the beneficiaries of the trust or foundation? Are they individuals, organizations, or both?
- Consider your tax implications. How will the trust or foundation be taxed? Will it be taxed as a trust or as a corporation?
- Consider your management preferences. Do you want to be involved in the management of the trust or foundation? Or do you want to delegate management to others?
By considering these factors, you can make an informed decision about whether a trust or foundation is the right choice for you.
Deciding on expatriation Should you surrender your US passport or green card?
A. THE IMMIGRATION & NATIONALITY ACT Section 349(a)(5) explains how a United States citizen can give up their U.S. citizenship while living abroad. This section states that a person can lose their nationality by choosing to give it up in a formal way before a diplomatic or consular officer of the United States in a foreign state, in such form as prescribed by the Secretary of State.
B. ELEMENTS OF RENUNCIATION: To give up U.S. citizenship, a person must choose/want to do so, go in person to see a U.S. consular or diplomatic officer in a foreign country at a U.S. Embassy or Consulate, and sign an oath saying they want to give up their citizenship. A person cannot give up their citizenship in another way, such as by mail, on the Internet, or through someone else. In fact, U.S. courts have said that some attempts to give up U.S. citizenship do not count for various reasons.
C. REQUIREMENT: RENOUNCE ALL RIGHTS AND PRIVILEGES: A person who wants to give up their U.S. citizenship must also give up all the rights and privileges that come with being a U.S. citizen.
D. DUAL NATIONALITY / STATELESSNESS: People who want to give up their U.S. citizenship should know that unless they already have citizenship from another country, they might not have any citizenship at all. This means they will not have the protection of any government and might have trouble traveling because they will not have a passport from any country. Not having any citizenship can cause many problems, such as having difficulty owning or renting a place to live, getting a job, getting married, getting medical help or other benefits, or going to school. Those who renounced their citizenship will need a visa to travel to the United States or show that they can enter the country without a visa under the Visa Waiver Program. If they cannot get a visa, they might never be able to go back to the United States again.
E. TAX & MILITARY OBLIGATIONS / NO ESCAPE FROM PROSECUTION: People who want to give up their U.S. citizenship should know that it does not change their liabilities on taxes or military service (they can ask the Internal Revenue Service or U.S. Selective Service for more information).
Also, giving up U.S. citizenship does not mean someone cannot be punished for breaking United States law or that they do not have to pay back the money they owe, including child support payments.
Insights on Pre Expatriation Tax planning
Among the various requirements contained in IRC 877 and 877A, individuals who renounced their U.S. citizenship or terminated their long-term resident status for tax purposes after June 3, 2004, are required to certify to the IRS that they have satisfied all federal tax requirements for the five years prior to expatriation. If all federal tax requirements have not been satisfied for the five years prior to expatriation, the individual will be subject to the IRC 877 and 877A expatriation tax provisions even if the individual does not meet the monetary thresholds in IRC 877 and 877A.
Individuals who have expatriated should file all tax returns that are due, regardless of whether or not full payment can be made with the return.
Depending on an individual’s circumstances, a taxpayer filing late may qualify for a payment plan. All payment plans require continued compliance with all filing and payment responsibilities after the plan is approved.
In September 2019, the IRS announced procedures for certain persons who have relinquished, or intend to relinquish, their U.S. citizenship and who wish to be compliant with their U.S. income tax and reporting obligations and avoid being taxed as a “covered expatriate” under IRC 877A.
Roles of Online Influencers on International Tax and Investment Migration
Online influencers play a number of roles in international tax and investment migration. They can:
- Provide information and education. Online influencers can provide information about different tax and investment migration options, the pros and cons of each option, and the regulatory requirements involved. This can be helpful for individuals who are considering these options but may not be familiar with the process.
- Connect people with professionals. Online influencers can connect individuals with professionals who can help them with their tax and investment migration needs, such as lawyers, accountants, and financial advisors. This can be helpful for individuals who are not sure where to start or need help navigating the complex process of tax and investment migration.
- Promote certain destinations. Online influencers can promote certain destinations as being tax-friendly or good places to invest. This can influence the decisions of individuals considering tax and investment migration.
- Create a sense of community. Online influencers can create a sense of community for individuals interested in tax and investment migration. This can be helpful for individuals feeling isolated or looking for support from others going through the same process.
It is important to note that not all online influencers are created equal. Some influencers may be more credible and trustworthy than others. It is important to do your research and vet any influencer before following their advice.
Here are some tips for finding credible online influencers in the field of international tax and investment migration:
- Look for influencers who have a good reputation. You can check online reviews or ask friends and colleagues for recommendations.
- Look for influencers who are transparent about their qualifications. They should be able to tell you about their education and experience in the field of international tax and investment migration.