Minimizing U.S. Tax for EB-5
Investors: Advance U.S. Tax
Planning is Essential
Steps EB-5 investors can take before becoming a
resident to significantly reduce and even eliminate
their U.S. tax burden.
By Jonathan Mintz
B
y investing through the EB-5 program, EB-5 investors
are pursuing a “fast track” to a U.S. green card and
ultimately U.S. citizenship. However, in obtaining a green
card, these investors often unknowingly and unnecessarily
subject themselves to significant U.S. income and transfer
tax. What are these U.S. taxes, why should EB-5 investors
plan to minimize U.S. tax before obtaining a green card,
and what are some of the common U.S. planning options
to reduce or eliminate U.S. tax. Moreover, once an EB-5 investor becomes a green card
holder, all of the appreciation on non-U.S. assets is subject
to U.S. income tax. For example, suppose an EB-5 investor
has a long-held business outside the United States that
is worth several million dollars. If the investor sells the
business after becoming a U.S. green card holder, all of
the gain will be subject to U.S. federal capital gain tax,
currently 20 percent, and potentially state capital gain tax,
an additional 13.3 percent in California, for a total of 33.3
percent if the investor resides in California.
U.S. INCOME TAX It is important to note that the United States tax liability
is based upon application of its tax rules, so the investor
must prove his tax basis in the property (i.e., what he paid
for the asset), or the tax basis will be presumed to be zero.
This is important because, with a tax basis of zero, the
entire sales price will be subject to U.S. tax.
Unless there is a tax treaty to the contrary, for U.S.
income tax purposes, a green card holder is a U.S.
resident for U.S. income tax purposes until that green
card status is rescinded or abandoned. Significantly,
if one is a U.S. resident for income tax purposes, all
of their worldwide income is subject to U.S. income
tax. This is significant because most countries only
tax locally sourced income, whereas the U.S. taxes
worldwide income, regardless of where earned.
"Significantly, if one is a
U.S. resident for income
tax purposes,
all of their worldwide
income is subject to U.S.
income tax."
Furthermore, it does not matter if all of the gains were
earned before the investor became a U.S. green card
holder. Back to the example above, if the business is
sold after the investor is a green card holder, the United
States will tax all of the sale’s gain, regardless of when
that gain was earned.
The same is true for any foreign gain realized after the
investor becomes a U.S. green card holder. While this
may seem unfair, this is how the United States taxes
gain on the sales of assets.
PRE-IMMIGRATION PLANNING
Therefore, the EB-5 investor should take steps now, before
obtaining a green card, to reduce the overall taxation on
his property worldwide. By eliminating all gain before
migrating to the United States, the investor can virtually
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