Introduction
- The cost of doing business or remaining in the United States is that you will be subject to some level of taxation as well as incurring other legal obligations.
- Tax law is extremely complicated and every individual case and situation is different.
- Advance planning can avoid incurring and exposing yourself to legal risks and can also help you reduce the amount of taxes you have to pay.
- The following presentation is a brief summary of the issues that every foreign national should anticipate and discuss with his or her U.S. attorney as he or she prepares his or her own plan and strategy.
- They are only taxed on income received in the United States, called “U.S. Source”; and not on income received abroad, called “Foreign Source”.
- However, certain income received in the United States is tax exempt (e.g. capital gains on the sale of U.S. registered shares, loans to certain U.S. persons, etc.).
- Taxes on income earned in the U.S. Source are normally taxed at a flat rate of 30% with no deductions, unless there is a reduction under an international treaty.
- The person who has the obligation to pay is the one who normally has the obligation to withhold the tax at source.
- Deductions are sometimes allowed for income received in the U.S. source in connection with certain business activities.
- Taxed on worldwide income, both U.S. Source and Foreign Source
Foreign Source income of a Tax Resident includes, but is not limited to:
- dividends and interest realized on foreign investments
- proceeds from the sale of real estate or businesses located abroad
- commissions or fees received in consideration for the performance of personal services abroad
- gains derived from currency exchanges, etc…
- A “Foreign Tax Credit” can normally be obtained in the amount of tax thatwas actually paid in another country on the same income.
- Information on bank accounts where there is a direct or indirect economic interest or where there is withdrawal power.
- Direct or indirect shareholdings in certain foreign companies
- Transfers to or from a foreign trust
- Receipt of gifts or inheritance from a foreigner
- Basically everything that is required of a U.S. citizen
- U.S. Citizens and Permanent Residents (green card holders), even if they have dual citizenship or have never been in the U.S., unless they qualify for a non-residency election under international agreements.
- Persons with “Substantial Permanence” in the U.S., unless they qualify to elect nonresidency for tax purposes under the exception of having a “Proximate Connection” to another country or by virtue of an international treaty.
- Note: The determination of tax residency is NOT dependenton immigration status, although the latter is relevant.
