DUBAI: Many wealthy foreigners considering their options for investment, permanent residency or citizenship in the US are concerned about the US tax policy. Many have heard of the US income tax on worldwide income, but in reality, astute advisors can mitigate or eliminate the additional expense.
US Freedom Capital, the premier EB-5 Investment Firm, clarifies that there are several options available to the non-US investor to minimize their US tax burden.
The US federal government imposes two major taxes on non-US investors: the Federal Income Tax and the Federal Estate Tax. Both these taxes may apply to the offshore investor as an individual, regardless of whether or not the investor has ever stepped foot on US soil. Depending on the amount of time a non-US investor spends in the US, these taxes are applied either on their US investments or worldwide investments.
“We see a common misconception in the GCC that the US federal income tax is based on assets. However, the US federal tax is based on income, and there are ways in which the taxes can actually be legally minimized or eliminated. For example, the non-US investor is not taxed on his ownership of a US hotel, but rather the income from the hotel. We strongly recommend that non-US investors hire a knowledgeable US tax advisor to understand the entire process and minimize their tax burdens,” David Gunderson, Principal and Chief Investment Officer, US Freedom Capital, said.
“Because of our prior experience with non-US investors, we are always aware that a US tax liability is a major concern. Several steps are crucial to minimizing or eliminating US tax liability. First, while the US federal tax system is applied evenly across the country, US states and cities also have their own taxes, which vary widely. California and New York are among the most well-known locations in the US, but are a poor financial choice for investment and residence due to their excessive tax rates and net out-migration. We have established our company’s headquarters in Dallas, Texas, which has no state income tax, and is growing at a strong and consistent rate.”
“For investors with no interest in US permanent residency (Green Card), we offer investments in US real estate with compelling returns and no US tax liability. For those seeking the safety, security and opportunity of life in the US, we offer investments to achieve the requirement of the US EB-5 Investor Visa. For these future US residents, education about the US tax system is very important in order for them to understand investment and taxes in the US in general, especially as it relates to the EB-5 Investor Visa program. To do so, we organize regular seminars in the GCC conducted by our top-level management and have local representative offices where prospective investors can have their questions answered.
For investors seeking returns without US residency, the first aspect to consider is the US ‘FIRPTA Tax Act’, under which the US imposes a significant tax withholding on gains earned by non-US persons from their income (10 per cent) and sale (30 per cent) of their US real estate. In order to release the withholding, the investor must file a US personal income tax return; an option that is unattractive to those not previously required. These rules apply to equity ownership in US real estate excluding a personal residence. The second aspect is the US Estate Tax, a federal tax imposed on the right to transfer property upon the death of the individual owner. Generally, the estate of the non-US investor requires paying 40 per cent on the market value of the property to transfer ownership to the inheritor.
Clearly if a non-US investor wishes to make a US real estate investment, a solution needs to be found to limit investor liability for US income tax and estate tax. Thus, as a premier investment manager with over $4 Billion USD of prior experience, US Freedom Capital utilizes legal methods to gain the benefits of US investments without the tax disadvantages. The US Freedom Capital Fund, structured by US and UAE tax and legal professionals, helps investors accomplish the goal of having the security of US real estate investments while maintaining the tax-free advantage of the UAE.
The Fund – domiciled in the Cayman Islands and structured for compliance with US, Cayman Islands and UAE laws – intends to deliver compelling returns by utilizing the Cayman Island Segregated Portfolio Company structure – a proven legal and stable investment structure.
If the prospective investor intends to pursue US residency, known as the “Green Card”, there are also a number of other ways through which taxes can be reduced in general. For example: since the US income tax and estate tax is considered on the purchaser as an individual, a non-US structure can be set up by an individual before they move to the US. Depending on their planning horizon before establishing US residency, the individual may even retain complete control over the structure while being exempt from US income and estate tax.
Another way of reducing the tax implications whereby the US Permanent Resident, unlike the US citizens, can avoid estate tax at least on assets located outside the US is if he or she (or the estate) can establish that the US is not the country of domicile. The US Estate Tax is based on the concept of domicile, and not on Citizenship. The US Permanent Resident with a foreign domicile will have to pay US income taxes, but all foreign assets could be excluded from estate taxes on death.
Other techniques involve utilizing planning techniques for US tax purposes that have no tax consequences in the individual’s country of origin. Engaging in a transaction prior to moving to the United States that is treated as a sale of the property for US purposes is one such way. This technique increases the cost basis of an asset to its fair market value immediately before the move to the United States, thus eliminating the potential US tax on any appreciation that occurs prior to the date of the move.