Foreign Nationals Living in the U.S.
Foreign nationals living in the U.S. are often shocked to learn of the world-wide basis of taxation that applies in the U.S. once a foreign national establishes U.S. “residency”. Even more surprising is the extent of the informational reports that are required for a U.S. resident with foreign financial assets.
Unlike most other countries, the U.S. taxes residents on their worldwide income even if the gains are accrued prior to a move to the U.S., and even if the funds from the income or gain event are not remitted to the U.S.
Furthermore, ownership of foreign financial assets often requires the filing of complex information returns, with steep penalties for non-compliance.
The U.S. tax and information reports typically provide the greatest burdens on taxpayers with non-U.S. financial accounts, non-U.S. fund type investments, non-U.S. business entities and trusts, etc.
In general, gifts to a spouse who is not a U.S. citizen are not eligible for the gift tax marital deduction and may trigger a significant gift tax liability if not properly planned for. However, a U.S. resident is allowed to make annual gifts to a non-citizen spouse up to the designated exclusion which is $155,000 for 2018.
Often, the creation of a joint tenancy in personal property is considered a completed gift between spouses if the parties are foreign nationals living and domiciled in the U.S. The precise application of this rule can vary from state to state and can be very sensitive in a state such as New York where a non-citizen spouse can be deemed to have received a gift of the funding of a joint bank account.
Transfers at death also do not qualify for the marital deduction if the recipient spouse is not a U.S. citizen.
As in the case of gift taxes, worldwide taxation applies to estates of foreign nationals living in the U.S. if they have made the U.S. their permanent home (i.e. domicile).
If you decide to live in the U.S. contact our office to implement a comprehensive U.S. based income, gift, and estate tax plan and to update it on a regular basis.