5 Key Considerations When You Want to Move to the US

Being a high net worth individual allows you to see and do more than you ever dreamed of, but it also produces a number of issues which can require detailed planning. Moving your assets into the US can often feel confusing and overwhelming, and it can be a stressful and time-consuming process if done incorrectly. To give you an idea of how you can tackle the issues involved many overlook, we’ve create a simple guide that talks you through everything you need to know.

 The Importance of Avoiding Gray Areas

Clarity is the name of the game when it comes to the complex issue of cross-border taxation. Just because something isn’t prohibited doesn’t necessarily mean it’s a good idea, which is why it’s vital to get all of the basics in order in a proven way. Once you have a solid foundation, it’s then much more straightforward to fine tune everything else.

 Accounting For State-Specific Taxation

The state you move to can have a significant impact on how your assets and estate will be taxed. This means it’s important to build your pre-planning stage on a foundation that takes care of these all-important details from day one.

 Take California for example: residency for tax purposes is determined under rules which are completely different from those used for U.S. Federal income tax purposes:

-   You will be considered a resident if you live in California for any purpose other than transitory or temporary, and this will remain in effect should you be outside of California for a temporary or transitory purpose of any kind

-   If you are present in California for more than 9 months a year, you will be presumed to be a resident of California, and there will be a non-conclusive presumption of non-residence if you are present in California for 6 months or less in a given year 

It’s also important to note that the U.S. income tax treaties do not constrain a state to impose tax on income derived within said state. By having these considerations involved in the decision making process from the beginning, a workable long term solution can be achieved.

Transitional Income Tax Explained

Transitional taxation is an area that many organizations drastically over complicate, but really it comes down to one key fact: the year you make the move is effectively split into 2 tax years by the date of your arrival. Here’s a few more key facts you need to be aware of: 

-   Any individual changing residency during a tax year will be referred to as a ‘dual-resident alien,’ and this is different from the dual residency found under U.S. income tax treaties which covers individuals resident in two places at the same time.

-   You will only be taxed on your U.S. source income that can be shown to be accurately connected with trade and business with and within the U.S. during a period of non residency, but will be taxed on global income during U.S. residency

-   It should also be noted that income from employment outside of the U.S. is only exempt from U.S. taxation before the residency period begins.

-   Sales of property will be taxed at the time of sale, which makes it important to take a strategic approach to the sale of assets.

-   Dual-status alien married to a U.S. resident, or citizen, has the option to be taxed as a resident alien for the full tax year of arrival. This can be under IRC §6013(h) where you will be treated as a resident of the U.S. for the entire year, or under IRC §6013(g) whereby you will also be treated this way for all years going forward in perpetuity, provided there is no chance to your or your spouses residency/citizenship.

This means that your liabilities for the first year can vary significantly from what they will be going forward in perpetuity. With the correct pre-planning before arrival, you can seek to minimize this in a way that’s fully compliant will all applicable tax codes

The Question of Residency

Whether applying for US residency will benefit you financially is determined largely by the state and distribution of your assets. Seeking advice well in advance will allow you to determine which is the right direction to take, but if you know you already wish to remain a resident solely of your home country, there’s a few things worth considering.

 Maintaining nonresidency for U.S. federal income tax purposes means you must:

-   Not obtain a green card

-   Not be present in the U.S. for more than 182 days per year

-   Maintain closer ties to a foreign country

-   Or obtain a green card, but qualify as a dual resident of two countries at the same time for tax purposes

In the case of the last point, a tie breaker will be involved which will require you to demonstrate in which country you have a permanent home available to you. In such instances where this applies to both countries, you will deemed to be a resident of the country with which you have the closest economic and business ties: your center of vital interests. If the tie cannot be broken with this, or by determining the place of your ‘habitual abode,’ you will be deemed a resident of the country you are a citizen of.

If you are pursing this path it is strongly advised to look into:

-   Life insurance to cover any U.S. estate tax liability

-   Mortgaging out any equity in U.S. property which cannot be transferred to a holding corporation

-   Shifting value to future owners by using partnerships such as LLCs to create ‘frozen interests’

-   Creating a fail-safe foreign trust to hold shares in the holding company

As you can see, the choice of whether or not to become a resident of the US for tax purposes is a lot more than one of national allegiance — there are a number of far reaching implications which need to be carefully considered.

Departing From the US Also Requires Planning

Whether you’re departing from the US entirely, removing assets, or structuring a trust so that it protects the beneficiaries in the event of the passing of the trustee, it’s vital to seek specialist advice well in advance. A pragmatic approach would be to include some level of departure planning as part of your preparations for arrival. That way you can see the big picture before you commit.

 What Now?

Pre-planning is always done best when it’s done early, as it gives you more time to understand your options. By seeking specialist advice at the earliest opportunity, you can remove significant amounts of stress and work from moving to your new home.