- 1 The EB-5 Immigrant Investor Program Tax
- 2 Substantial Presence Test & Worldwide Income
- 3 Foreign Tax-Exempt Income
- 4 FBAR, FATCA & PFIC Reporting
- 5 Closer Connection Exception and Applying For Permanent Residency
- 6 Resolving Issues with Amnesty Before Green Card Application
- 7 International Tax Lawyers Represent Clients Worldwide
The EB-5 Immigrant Investor Program Tax
Like many different foreign countries across the globe, the United States has its own version of the Residence-by-Investment (RBI) Golden Visa Program. For non-resident aliens, the United States offers the opportunity to invest significant amounts of money into the US economy in exchange for the ability to obtain a visa referred to as an EB-5 Foreign Investor Visa. Depending on how long the Taxpayer resides in the United States, they may later apply for Lawful Permanent Resident status – and ultimately become a US Citizen — if that is their end game. But for some taxpayers to obtain the EB-5 investment visa, becoming a US Citizen or Permanent Resident is not the end-game and so they must be aware of the tax implications of residing in the United States on this type of visa. Let’s go through five common EB-5 investment tax issues to be aware of.
Substantial Presence Test & Worldwide Income
The United States is one of only two countries that follows a Citizen-Based Taxation Model. That means that if a person is considered a US citizen, they are subject to US tax on their worldwide income. It is important to note that the term Citizen-Based Taxation is a misnomer because it also includes lawful permanent residents and even visa holders (and non-visa holders) who reside in the United States for a certain amount of days in the current and preceding two years and meet the Substantial Presence Test (SPT). If an EB -5 visa holder meets SPT — they become subject to US Tax on their worldwide income.
Foreign Tax-Exempt Income
In many foreign countries, passive income is tax-exempt. Those same rules do not apply under the US tax system, so a foreign investor who has significant assets and income overseas — especially if they are in a low or no income tax jurisdiction — they may find themselves paying a significant amount of US tax and not having any foreign tax credits to offset it.
FBAR, FATCA & PFIC Reporting
In addition to having included global income on a US tax return, taxpayers who are considered residents under the substantial presence test are also required to file various international information reporting forms, to report foreign accounts, assets, life insurance policies, and even foreign pension plans. If the person also has foreign investments in pool funds such as mutual funds or ETFs – they may become subject to PFIC tax, which may result in a tax liability that is double or triple the typical long-term capital gain or qualified dividend rates.
Closer Connection Exception and Applying For Permanent Residency
For a Person who is in the United States and potentially taxed on the worldwide income because they meet the substantial presence test — they may be able to escape US worldwide income and recording if they can show they have a closer connection to a foreign country or countries. A very important note, is that if the taxpayer has already applied for a green card, then generally they will not qualify for the closer connection exception.
Resolving Issues with Amnesty Before Green Card Application
When a person is a US resident such as an EB-5 Investor and decides they want to become a green card holder or US citizen, it is important that they are in tax compliance at the time they apply — or as early as they can once realizing that they are out of compliance — even if they’ve already begun the application process. Not to worry, the Internal Revenue Service has developed several different amnesty programs to assist taxpayers in this situation –– taxpayers should consult with a Board-Certified Tax Law Specialist who specializes in international and offshore tax compliance matters to get a good lay of the land and assess the different strategies for getting into compliance.
International Tax Lawyers Represent Clients Worldwide
Golding & Golding: Our International Tax Lawyer team specializes exclusively in international tax, and specifically IRS offshore disclosure.
Contact our firm for assistance.