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U.S. Taxes and The Green Card
- 1. U.S. TAXES AND THE GREEN CARD Planning Ahead International Accounting & Compliance GENEVA | HONG KONG | SEATTLE | SHANGHAI
- 2. LEGAL NOTICE IMPORTANT LEGAL INFORMATION PLEASE READ This presentation is prepared for general guidance only, and does not constitute the provision of accounting, legal or tax advice in any manner, written tax advice under U.S. Internal Revenue Service Circular 230, or any professional advice of any kind. “Gray International” or “Gray” refers to Gray CPA, PC (a U.S. CertiIied Public Accounting Iirm) and Gray International Ltd (a Hong Kong Limited Company). The information provided in this presentation should not be a substitute for consultation with qualiIied professionals who understand your situation, as it will differ from others. In addition, when making any tax planning decisions you should consult with your own legal, tax, accounting and other professional advisors. IRS Circular 230 notice: Tax advice, if any, included in this communication (including any attachments) is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code or by any other governmental tax authority. This presentation has been provided as a courtesy, and therefore while care has been executed in the preparation of this information Gray CPA, PC (U.S.), Gray International, Ltd. and all of their afIiliates make no representations as to its completeness, accuracy or the timeliness of the information and takes no responsibility to update this information, such information is being provided without warranty of any kind. © 2013 Gray CPA, PC and Gray International Ltd. with all rights reserved, this document shall not be reproduced or distributed without the express written permission of Gray CPA, PC or Gray International, Ltd. For more information about us, please visit us at www.grayintl.com. International Accounting & Compliance
- 3. WHO WE ARE OUR PROFILE Gray International (“Gray”) is an international network of public accounting and consulting Iirms based in the U.S., Hong Kong, China and Europe. Gray was started over 10 years ago in the U.S. (via its predecessor) and took the form of Gray International in 2013 as the result of the networking of multiple independent practices and professionals. Gray provides international accounting and compliance solutions in the U.S., Americas, Asia and Europe. Gray focuses on U.S. accounting, tax, and governmental compliance for multinational companies, investors, U.S. persons living overseas and foreign investors and companies investing in or moving to the U.S. Gray also consults on compliance with U.S. laws for businesses and Iinancial institutions overseas such as the Foreign Corrupt Practices Act (FCPA) and the Foreign Account Tax Compliance Act (FATCA), the IRS Offshore Voluntary Disclosure Program, and the Program for Non-‐Prosecution Agreements or Non-‐Target letters for Swiss Banks. Gray’s principals, partners, and employees have served clients worldwide. Gray has ofIices in Geneva, Hong Kong, Seattle, Shanghai and plans to open an ofIice in Singapore in late 2013. Gray’s U.S. public accounting Iirm (Gray CPA, PC) is registered with the U.S. Public Company Accounting Oversight Board and is a member of the American Institute of CertiIied Public Accountants and the Center for Audit Quality. For more information about us, please visit us at: www.grayintl.com International Accounting & Compliance
- 4. WHAT WE DO OUR SERVICES AUDIT AND ATTEST SERVICES INTL. FORENSIC ACCOUNTING U.S. TAX COMPLIANCE U.S. FATCA COMPLIANCE INTL. TAX STRUCTURING U.S. FCPA COMPLIANCE International Accounting & Compliance
- 5. WHAT WE DO OUR PRACTICE AREAS AUDIT AND ATTEST SERVICES INTL. FORENSIC ACCOUNTING U.S. TAX COMPLIANCE Our experienced auditors provide extensive experience auditing public and private companies in the developed and developing markets. Let us put our extensive experience operating in the U.S., Asia, Europe and the Americas to work for you. Our forensic accounting services are designed to providing vigilance before the fact, reconstructing and tracing records after the fact, and preparing for trial once the Iindings are made. Our team of experts are available for worldwide engagement. U.S. FATCA COMPLIANCE INTL. TAX STRUCTURING Gray provides extensive U.S. tax compliance solutions to clients worldwide. We work with individuals, family ofIices, investors, Iinancial institutions, multinational companies and domestic (U.S.) businesses. Let us guide you through the maze of complex U.S. tax compliance. No single piece of U.S. legislation will have a larger impact on foreign Iinancial institutions and intermediaries in the next 5 years as FATCA. Let us help you assess how this will impact your organization and how to implement a practical, affordable solution. In today’s global landscape international tax structuring and planning has never been more important. From transfer pricing, treaty compliance, withholding minimization, estate planning and domiciliation, to pre-‐residency tax planning Gray is ready to help you navigate this difIicult terrain. U.S. FCPA COMPLIANCE Widespread globalization brings increased risks of corrupt practices, and correspondingly, an increase in FCPA enforcement, penalties and prosecutions. Let Gray help you prepare and implement appropriate controls to protect your organization from violations. International Accounting & Compliance
- 6. WHERE WE WORK GEOGRAPHIC AREAS OF EXPERIENCE Greenland Alaska Iceland Canada USA Bahamas Mexico Belize Guatemala El Salvador Cuba Honduras Nikaragua Dom. Rep. Jamaica Venezuela Costa Rica Guyana Panama Columbia Suriname Fr. Guyana Ecuador Brazil Peru Norway Sweden Russia Great Germany Belarus Ireland Britain Poland Ukraine Kazazhstan France Mongolia Romania Uzbekistan Kyrgysistan Italy North Korea Spain Portugal Turkey Tajikistan Japan Greece Syria Turkmenistan China South Korea Tunisia Lebanon Iraq Iran Afghanistan Morocco Bhutan Israel Nepal Qatar Algeria Libya Pakistan Saudi Westsahara Taiwan Egypt Myanmar Arabia U.A.E India Laos Eritrea Oman Mauritania Bangladesh Mali Niger Vietnam Chad Senegal Yemen Sudan Cambodia Burkina Guinea Philippines Nigeria Thailand Ethiopia Sierra Leone C.A.R. Kamerun Somalia Malaysia Liberia Togo Uganda Ghana Cote d‘Ivoire Gabun D. R. Kenya Congo Indonesia Tanzania R. Congo Angola Bolivia Paraguay Finland Namibia Zambia Papua New Guinea Mozambique Zimbabwe Botswana Madagascar Australia Swaziland South Africa Chile Uruguay Argenena Lesotho New Zealand International Accounting & Compliance
- 7. I AM GETTING MY GREEN CARD NOW WHAT ABOUT TAXES? International Accounting & Compliance
- 8. WELCOME TO U.S. WORLDWIDE INCOME TAX U.S. taxpayers are required to report and pay taxes in the U.S. on their worldwide income, regardless of where it was earned, where they lived and even if they already paid taxes to another country. In general these types of income include compensation income, interests, dividends, and other investment income, business income, capital gains, rental income and pension income. A Lawful Permanent Resident (“LPR”) becomes a U.S. resident and U.S. taxpayer when they receive their alien registration card (or “Green Card”) for immigration purposes. Tax residency begins in the year, and in most cases on the Iirst day, that the LPR is present in the U.S[1], and the Iirst day of the year following the receipt of the Green Card regardless of whether the LPR ever comes to the U.S. Residency then continues until (a) the LPR status has been revoked or (b) it has been administratively or judicially determined to have been abandoned or (c) the U.S. residence status is affected by an international tax treaty whereby the LPR is not subject to double taxation. Once residency has been established it is irrelevant if the LPR remains present in the U.S. and they will remain subject to all of the same tax rules applicable to U.S. citizens unless they lose their LPR status. [1] For those who meet the requirements of the physical presence test, tax residency may begin prior to receiving their Green Card. International Accounting & Compliance
- 9. WHAT ARE MY REPORTING OBLIGATIONS? While the scope of this presentation is not large enough to encompass all of the potential reporting obligations of a U.S. Taxpayer, below you will Iind some common examples of reporting obligations for resident aliens: § You are required to report your worldwide income annually. This includes income (for example dividends, rents, foreign currency gains or interest) that is received and kept offshore. This is generally done on IRS form 1040 U.S. Individual Income Tax Return. § You are required to report all of your offshore Iinancial accounts to the United States Treasury on an annual basis if the aggregate value exceeds $10,000 at any time during the year. These include those beneIicially owned by you in any way, and also accounts to which you are a signatory (such as business and trust accounts). This is done on Treasury Department Form TD F 90-‐22.1. § You are required to report beneIicial ownership of speciIied foreign Iinancial assets which includes any Iinancial account, stock or securities issued by someone who is not a U.S. person, any interest in a foreign entity, any Iinancial instrument or contract with an issuer or counterparty that is not a U.S. person. This obligation begins when (if Iiling single or separately) the foreign Iinancial assets exceeds (1) $50,000 on the last day of the year, or (2) $75,000 on any day during the tax year, for married couples the threshold is (1) $100,000 on the last day of the tax year, or (2) $150,000 on any day during the tax year [1]. This is done in IRS Form 8938, Statement of SpeciIied Foreign Financial Assets. [1] There are additional reporting obligations and foreign assets which require or do not require disclosure, such additional detail is in excess of the scope of the subject matter of this presentation. International Accounting & Compliance
- 10. WHAT ARE THE U.S. TAX RATES? In the U.S. tax is imposed by the Federal Government, most states and in some cases local governments. Basic U.S. federal income tax rates are listed below: § Individual income tax rates are marginal, in that they increase as taxable income increases. Tax rates begin at 10% once $8,925 in taxable income is earned (for single and married Iiling separately taxpayers, married Iiled jointly amount begins at $17,850) and increase until they reach the highest rate of 39.6% (at approximately $400,001 in income for a single and married Iiling separately taxpayers, and $450,001 for married Iiling jointly taxpayers). § § Capital gains (gains from the sale of capital assets such as stocks and investment real estate) are taxed based on the holding period of the asset which is sold and the type of asset. In general, if the asset was held for less than one year, they are taxed at the same rate as income in number 1 above. If the asset was held for more than one year they are taxed at a rate of 15%. Sales of collectibles are taxed at higher rates. U.S. federal corporate tax rates are also marginal and generally begin at 15% and can be as high as 40%. [1] There are additional reporting obligations and foreign assets which require or do not require disclosure, such additional detail is in excess of the scope of the subject matter of this presentation. International Accounting & Compliance
- 11. WHAT HAPPENS IF I DON’T COMPLY? PENALTIES AND RISKS ARE HIGH Non-‐compliance with the U.S. tax laws are severe and can include criminal liability. While the scope of this presentation is not large enough to encompass all of the potential penalties for not meeting Iiling obligations, here are some common penalties that an LPR can face: • Failure to Iile a U.S. tax return – penalties are 5% of the balance due plus and additional 5% per month, up to a maximum of 25% of the tax due. • Failure to pay taxes when due – a penalty of .5% of the amount of the unpaid tax per month up to a maximum of 25%. • Accuracy related penalties – If the amounts reported on an income tax return are later adjusted by the IRS and a tax increase results, an additional penalty may be assessed of 20% -‐ 40% of the increase of the taxes due in some cases. • Fraud penalties – if you fail to Iile a return or pay tax due and the IRS can demonstrate fraud, you can be liable to penalties that amount to 75% of the unpaid tax, and criminal prosecution. • Taxpayers who are shareholders of corporations which are controlled by U.S. persons (controlled foreign corporations) are required to Iile and annual disclosure statement. If such form is not timely Iiled penalties can be assessed at $10,00 to $50,000 per form. • Failure to Iile Statement of SpeciIied Foreign Financial Assets – up to $10,000 for failure to disclose and an additional $10,000 for each 30 days of non-‐Iiling after IRS notice for a failure to disclose; for a potential maximum penalty of $60,000; criminal penalties many also apply. • Failure to disclose foreign bank and Iinancial accounts can carry (among other penalties) the greater of $100,000 or 50% of the account balances, interest, and also criminal penalties which may include arrest and prosecution (in the case of an LPR likely removal/deportation). International Accounting & Compliance
- 12. POTENTIAL CRIMINAL LIABILITY U.S. TAX AND REPORTING VIOLATIONS CAN CARRY CRIMINAL PENALTIES Possible criminal charges related to tax returns include tax evasion (26 U.S.C. § 7201), Iiling a false return (26 U.S.C. § 7206(1)) and failure to Iile an income tax return (26 U.S.C. § 7203). Willfully failing to Iile an FBAR and willfully Iiling a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322. A person convicted of tax evasion is subject to a prison term of up to Iive years and a Iine of up to $250,000. Filing a false return subjects a person to a prison term of up to three years and a Iine of up to $250,000. A person who fails to Iile a tax return is subject to a prison term of up to one year and a Iine of up to $100,000. Failing to Iile an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000. International Accounting & Compliance
- 13. IMPLICATIONS FOR FOREIGN BUSINESS OWNERS Foreign business owners are in a unique position to take advantage of pre-‐residency planning to structure their affairs to reduce the tax impact of their residency decision. The greatest opportunity for planning and structuring is prior to when the foreign business owner obtains LPR status or tax residency. When a foreign business owner becomes a U.S. resident, they then become subject to the U.S. tax system. This means that dividends, payments for directorships and salary payments to the LPR become subject to U.S. taxation, even in not received or paid in or to the U.S. Foreign corporations owned by LPRs are subject to special reporting, and may be subject to the payment of U.S. taxes. In extreme cases there can be circumstances when a foreign corporation, which is owned by a U.S. taxpayer, can be subject to taxes in the local jurisdiction, also be subject to taxation in the U.S., and then subject to U.S. taxation to the LPR when dividends are distributed, resulting in triple taxation. Pre-‐residency planning and structuring can have signiIicant implications on how earnings are taxed and in many cases can dramatically reduce the amount of taxes which would otherwise have been due without planning. International Accounting & Compliance
- 14. PRE-RESIDENCY PLANNING A UNIQUE OPPORTUNITY NOT AFFORDED TO U.S. CITIZENS U.S. residency brings with it a complicated array of tax and legal consequences, many of which are not obvious or apparent when making the decision to make the U.S. your home. Any foreign national who anticipates becoming a U.S. resident should seek tax counsel prior to becoming a U.S. resident to make sure that the potential adverse tax consequences are addressed in advance. Gray’s pre-‐residency planning enables you to understand the tax consequences of your decision, and structure your affairs prior to becoming a U.S. taxpayer. Gray’s pre-‐residency tax planning is especially impactful for foreign business owners and those who will still receive foreign income and maintain foreign assets after becoming a U.S. resident. Effective tax planning has the potential to yield signiIicant tax savings, paying for itself many times over. Gray’s pre-‐residency tax planning begins with a comprehensive evaluation of your situation, speciIic recommendations for your unique situation, and the coordination and implementation of the plan. International Accounting & Compliance
- 15. CONTACT US Gray welcomes your questions, comments and inquiries and would like the opportunity to serve you. Address: U.S. International OfIice (Handling U.S. Tax and Compliance for International Business) Attn: Jeremy Stobie, CPA, CFE th Street 10900 NE 8 Suite 1000 Bellevue, WA 98004 Phone: + 001 425.999.3685 xt 10 Website: www.grayintl.com E-mail: info@grayintl.com International Accounting & Compliance