EB-5 investors will become a U.S. tax resident if they have a Green Card or have spent more than 183 in the U.S. during the past three years.
There is a tax-treaty tiebreaker exception to the tax-residency rule which allows an individual to keep his or her vital centre of interest in the treaty country. Another exception is under a student visa, days of presence in the U.S. do not count towards the 183 days.
Worldwide Income is Taxed — But Strategies to Mitigate Taxes Exist
EB-5 Green Card holders in the U.S. must report all worldwide income in the U.S.; however, there are ways to avoid double taxation or just U.S. taxation.
Strategies to minimize U.S. taxation should be considered and implemented prior to establishing U.S. residency.
For example, often EB-5 investors have shares in businesses building profits that have not yet been disbursed to owners; the acceleration of events prior to U.S. residency can avoid taxation on this completely.
For assets with unrealized built-in gains that cannot be sold prior to U.S. residency, an EB-5 investor should bring the cost value of such an asset to fair market before U.S. residency; this ensures the future sale of the asset as a U.S. resident will only be subject to U.S. taxation on the increase in value after residency.
To avoid double taxation, an investor can also elect for the U.S. treatment of foreign entities.
For foreign-controlled entities, there is also the possibility to defer income U.S. taxation by interposing a U.S. corporation, if earnings and profits are reinvested in further business activities.
Foreign mutual funds are also highly taxed if no special election can be made.
Estate tax planning for EB-5 investors is also another area that deserves attention as worldwide assets and gifts are subject to estate and gift tax in the U.S. — and at a rate of 40% for assets worth over $1,000,000; however, a lifetime exemption of about $11.6 million per person means only assets over this number will be taxed at that rate.
Consider hiring a tax strategist
Investors with considerable wealth should consider tax planning strategies to mitigate taxes before becoming a U.S. resident. Strategies can include gifting to family members, irrevocable trusts, or an insurance policy for future tax liabilities.