EB5 Investors Magazine Volume 7, Issue 2 | Page 22

Smart tax planning before becoming a U.S. tax resident via the EB-5 route Moving to the United States could come with a hefty tax price tag. However, when planning prior to the move, many tax pitfalls can be avoided. By Cristina Teixeira US TAX RESIDENCY RULES TAX RESIDENCY EXCEPTIONS Individuals become U.S. tax residents if one of the following tests are met: if they are U.S. citizens; if they have a green card or if they exceed 183 days on U.S. soil in a “substantial presence test” formula that considers the days spent in the past 3 years. There are exceptions to the U.S. tax residency rule. Individuals holding green cards can claim the tax-treaty tie breaker rule. In this case, income will be exempt from U.S. tax under the treaty, as long as the individuals keep their vital center of interest in the country with which the U.S. has signed a tax treaty. When moving to the U.S. via the EB-5 route, investors are granted a permanent resident card. In this case, the U.S. tax residency starts on the day of the first entry in the coutry with the green card or when the green card is issued, if the individual is already in the U.S. It is possible, however, that the U.S. tax residency starts even sooner for those already on U.S. soil, depending on the type of visa they held prior to obtaining the green card and the number of days they spent in the U.S. Once a green card holder, an individual is always a U.S. tax resident, unless one of the exceptions to the residency rule applies, or the individual relinquishes the green card. 22 EB5 INVESTORS M AGAZINE Another exception applies to the substantial presence test, and it can be granted to students. Many immigrants first come to the U.S. to study, decide to stay on a permanent basis, and choose the EB-5 route. When in the U.S. under a student visa, the days of presence are considered exempt and do not count towards the 183 days formula. As a result, the person is considered a nonresident in the U.S. and is only subject to U.S. tax on U.S. source income and assets. This exemption can be used for up to 5 calendar years during a person’s lifetime.