With all the noise about Americans renouncing their citizenship and paying an exit tax just to be freed from what they consider an oppressive tax regime, it’s nice to know that it’s a two-way street.
More people by far are applying to come to the U.S. than are leaving the country. In the first half of 2013, slightly more than 1,800 people renounced their U.S. citizenship or permanent resident status, which is more than the 1,781 who renounced during the entire year in 2011. Still, last year more than 7,000 came here on the EB-5 visa alone, according to Ronald Fieldstone, a partner at the law firm Arnstein & Lehr.
Among the avenues to residency, the EB-5 Visa program provides a fast track for those immigrants with the wherewithal to set up a business. The requirements are a minimum investment of $1 million, or $500,000 in “Regional Centers” in rural areas or urban areas with high unemployment rates, which will provide 10 jobs.
The EB-5 visa was started in 1990 as a way to allow immigrant investors to come here to invest and create jobs. It started as a pilot program and has been renewed seven times. “It’s currently set to expire in 2015,” remarked Fieldstone. “An amendment to the massive immigration bill currently before Congress would make it permanent. If the immigration bill doesn’t get passed, it will probably be separately proposed [in a stand-alone bill or as part of other legislation].”
The U.S. is reaping multiple benefits from the program, including capital investment, jobs and an influx of wealthy and well-educated immigrants who are here because they want to be here.
However, the same question is appropriate with incoming as with outgoing citizens: what is the tax bill?
Once foreign investors apply or are approved for the visa, one of the next steps to consider is tax planning before becoming a U.S. resident. When EB-5 investors, or any other immigrants, become conditional permanent residents in the United States, they are subject to federal income tax on their worldwide income, just like any other resident or citizen.
There is a lack of sophistication on the part of many of these immigrants as to what their reporting obligations are, noted Fieldstone.
“This is especially so regarding FBAR [Foreign Bank Account Reporting] requirements,” he said. “They need to be educated about what it means to be a U.S taxpayer. Most of them will have some interest in a foreign bank account. They should be made aware of the tax reporting requirements and get involved in pre-immigration tax planning.”
In many cases, EB-5 applicant families involve the breadwinner staying in the home country. “For example, the husband may stay in China, while his wife applies for the visa and comes here with the children,” Fieldstone said. “The husband keeps his Chinese tax status and will not be taxed on his worldwide income."
The spouse who stays in the home country can come here for six months a year without being deemed a U.S. resident, and if he or she is ever worried about their status in the home country, they can be automatically admitted here because their spouse has a green card or is a citizen.
With the number of EB-5 applicants growing each year and the possibility that the program will be made permanent, the immigrant investor in need of tax planning may be an untapped resource for accountants.
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