Foreign nationals may decide or need to reside in the US for multiple reasons including, but not limited to employment relocation, business ventures, retirement and education. When assessing immigration to the US, whether on a temporary or permanent basis, foreign nationals must consider many aspects in addition to the cultural differences they may face. Immigration status, applicable taxes, securities regulations and the legal framework to which they may be subject during (and possibly after) their stay are all important issues that should not be overlooked.
A foreign national can become a US Person "US tax resident" under two rules:
1) The "green card" test. A person who has obtained a ‘green card’ has been granted the right to lawful permanent residence in the United States.
2) The "substantial presence test" is a day count test and based on the number of days a person is in the US over a three-year period
GREEN CARD HOLDERS AND TAX RESIDENTS
Like US citizens, green card holders and tax residents (through visas or otherwise) are subject to US income tax on their global income.
Important for green card holders – Tax responsibilities as a green card holder do not change if the person is absent from the US for any period of time. Reporting and income tax filing requirements and possible US tax obligations continue until the green card is either surrendered or there has been a final administrative or judicial determination that the green card has been revoked or abandoned.
Therefore, even if the US Citizenship and Immigration Service (USCIS) no longer recognizes the validity of a green card because the holder has been absent from the United States for a certain period of time or the green card is more than ten years old, reporting requirements and tax returns must continue to be filed until there has been a final determination that is not subject to appeal that the green card has been revoked or abandoned.
Many foreign nationals come to the US to work for a time period or have children who initially come over for education and often get a green card. If they leave, they usually don’t think to officially surrender their green cards. That leaves them with an obligation to report, file and fulfill their US tax obligations.
Entrepreneurs or staff members who commute back and forth to the US to promote or start their business can cross the threshold of residency (substantial presence test), often without realizing it. Residency means taxation on worldwide income and reporting obligations.
IN ADVANCE: PROPER PLANNING OF INTERNATIONAL INVESTMENT HOLDINGS IS IMPORTANT
The United States imposes income tax on a worldwide basis on its citizens and residents. It also imposes gift, estate and generation-skipping transfer (GST) taxes on a worldwide basis on transfers by its citizens or residents.
A pre-immigration plan for income tax purposes may contemplate the sale of assets with a considerable amount of unrealized gains, the exercise of certain stock option plans, or restructuring or electing on the treatment of foreign entities for US tax purposes depending on the specific circumstances of the individual.
Special attention should be given to the Controlled Foreign Corporation (CFC) and Passive Foreign Investment Companies (PFIC) rules, which may bring inefficiencies to the taxation of US residents. Examples of PFICs are foreign investment vehicles generating passive income (i.e. foreign mutual funds and foreign investment companies). Holding these types of securities may increase taxation and create additional reporting obligations.
Without proper planning US Persons are inadvertently subjecting their worldwide assets and income to the US tax system, which may have serious consequences, e.g. onerous PFIC taxes, investment restrictions etc.
US Persons also have reporting requirements.
FOREIGN BANKS MAY NO LONGER ACCEPT THEIR CLIENTS WHEN THEY BECOME US PERSONS
Becoming a US Person may also mean that the present foreign bank will no longer accept the US Person due to FATCA regulations. It is very important to review this point in advance and get properly organized and structured before going to the United States to avoid difficulties.
Consulting with an expert and efficiently organizing worldwide assets in advance is preferable to paying a high price due to a lack of knowledge and negligent organization.
Too often, good intent regarding pre-immigration planning morphs into post-immigration remorse for failure to implement plans on a timely basis.
Switzerland, as the global leader for cross border private wealth management is an ideal hub for the investments held abroad when becoming a US Person. When holding assets in Switzerland, a US Person will need to engage a Swiss wealth manager registered with the Securities & Exchange Commission (SEC) in the United States as an investment adviser, specialized in organizing and managing the assets of American citizens and US Persons.
Even though it is not their specific area of expertise, US immigration advisors do well to bring up the subject of their clients' international investment holdings well in advance of becoming a US Person to prevent any unpleasant surprises after moving to the US. Swiss SEC-registered investment advisors are happy to cooperate with US immigration advisors to the benefit their clients.