Will a Golden Passport Help Escape US Taxes, Yes and No

Will a Golden Passport Help Escape US Taxes, Yes and No

What is a Golden Passport

With the world market on shaky ground — and the political climate less than stellar, many US citizens are considering obtaining a golden passport in order to leverage the ability to simply leave the United States and travel globally on a different passport. Unlike a Residence-by-Investment Golden Visa which allows for residence but does not provide citizenship (at least not immediately), a golden passport means that the taxpayer has attained citizenship in a foreign country. Technically, this is referred to as Citizenship-by-Investment. Several countries across the globe have Citizenship-by-Investment programs or Residence-by-Investment programs — including the United States which has the EB-5 Visa, and allows a person to obtain US person status, which they can then parlay into a green card and subsequently US citizenship — if they so choose. Just obtaining a golden passport is not necessarily a ticket to tax freedom from the IRS — and they actually had the inverse effect. Here are five key facts to consider before obtaining a golden passport.

Acquiring and Maintaining a Golden Passport

Obtaining a golden passport in a foreign country can be a long and arduous process. In addition, it can be quite costly by the time you factor in the application fees, background checks, and the capital requirements to invest in a foreign country –– usually by way of acquiring foreign funds, bonds — or purchasing property in that country, in which the person has to maintain the asset for a significant amount of time.

You May Need to Keep Assets in the Country

In order to maintain the golden passport status, some foreign countries require the taxpayer to maintain assets in the country for a certain amount of time. Most foreign countries do not have FDIC insured or equivalent and housing markets can tumble at any time, so in making an investment overseas it is important to keep in mind that you may very well lose that investment and may not have the opportunity to get the money back as you would if it was a US-based investment.

Golden Passport Countries Can have Taxes Too 

While the United States is one of only a few countries in the world that tax US persons on their worldwide income based on their US Person Status and not just if they are a resident of the United States — most foreign countries still tax the income generated from assets or investments you maintain in the country even if you do not reside in our country. Therefore, taxpayers should be cognizant of how much money they are investing in the foreign country  — and what the tax rate is for that specific type of investment.

*Many countries tax individuals considered permanent or “full-time” residents on worldwide income.

If Your Reside Overseas without Expatriatng from the US First?

Here is a common situation the taxpayers must be aware of: Jim decides to obtain a golden passport and invests $5 million into a foreign country. He is not ready to expatriate just yet (formally give up his US citizenship status) so he has the worldwide income requirement of the United States to contend with. While the foreign country may exclude tax on particular types of passive income — the United States does not. Thus, not only would Jim now have to pay tax on the foreign income in the overseas country as well — but now Jim has to pay US tax on the foreign income that was generated in the overseas country. Moreover, for pooled fund investments, there is a good probability that any investment in foreign funds would result in a PFIC situation which may result in a 40+ percent tax rate on income that would ordinarily be taxed at 15 or 20% in the United States.

In other words, the Golden Passport sans formal expatriation just made Jim’s tax situation much worse…

About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure and expatriation.

Contact our firm today for assistance.