In light of the Foreign Account Tax Compliance Act (FATCA) and the European Common Reporting Standard, the U.S. along with other jurisdictions have committed to greater transparency and financial and tax information sharing. The U.S. has long offered a voluntary disclosure program.
On June 18, 2014, the IRS announced a new offshore voluntary disclosure initiative aimed at non-compliant U.S. taxpayers with non-U.S. bank and financial accounts and assets. The initiative is a modified version of the programs offered in 2009, 2011, and 2012. This program also offers a streamlined process in an effort to get U.S. taxpayers who did not willfully disregard their U.S. tax filing obligations. The streamline processes can, under certain circumstances, minimize the formal process penalties from 27.5% to 5% or even 0%.
If you have any foreign (non-U.S.) accounts and or financial assets and have not filed tax returns for a few years, or you have filed but did not disclose all your foreign financial accounts and assets, we can help you understand your situation and your options with regard to a voluntary disclosure.
The Foreign Account Tax Compliance Act (FATCA) was enacted under the HIRE Act of 2010. The purpose of which was to deter U.S. taxpayers from evading taxes with the use of offshore accounts and structures. Currently foreign financial institutions (FFI) are required to disclose certain information with regard to U.S. taxpayers who have accounts with them. FFI is broadly defined and includes non-U.S. hedge, and private equity, funds and foreign trusts (including some underlying entities), etc.
Foreign entities which are not FFIs are Non-Financial Foreign Entities (NFFEs). Depending on whether a NFFE is active or passive will determine if it must register and obtain a GIIN (special IRS tax identification number) and provide certain reports or withholding certificates to its vendors. If FFIs and NFFEs do not comply, they will be subject to a 30% withholding tax on their U.S. income.
We understand the FATCA rules can be overwhelming. We are well versed in these matters and can assist you with your registration and reporting requirements.
Foreign investors need to be aware of the nature, timing and size of relevant tax liabilities, as well as the legal requirements regarding tax disclosure on their investments in U.S. real property. A substantial part of our work involves assessing the tax and disclosure sensitivities of each client, and advising them on the options available for putting in place tax-efficient investment strategies and preparing the related U.S. tax returns.
We advise business and individual clients on the tax consequences of investing in the variety of different investment vehicles, including hedge funds, private equity structures, and real property trust and corporate structures.
Many of our clients include individuals, family offices and trustees, as well as foreign companies and private equity partnerships.
The U.S. imposes taxes on a worldwide basis. Tax assessment can apply to income that accrued outside the U.S. and prior to arrival. Simply recognizing a gain while a resident of the U.S. will trigger the tax, irrespective of where or when the gain accrued (foreign tax credits may provide relief). The U.S. gift and estate tax rules can also apply to foreign nationals living in the U.S. These rates go as high as 40% of the value of the property transferred by gift or bequest. With proper planning, substantial savings can be achieved, such as recognizing gains and completing gifts prior to a move to the U.S.
Termination of U.S. residency also requires careful planning. It is important to make sure that U.S. citizens and U.S. green card holders properly terminate their tax residency status as well as their immigration status. If not, the individual will continue to be taxed as a U.S. resident even though they have formally renounced such status under the immigration rules. Planning is important to ensure future visitation does not trigger the “anti-lapse rule” resulting in being a U.S. tax resident.
When U.S. persons receive certain foreign gifts and inheritances, benefit from a foreign trust, estate or other foreign wealth structures (civil law usufruct or foundation) or use foreign trust property, they must file various information returns with the IRS and U.S. Treasury Department. Regardless of the amount of income, or lack thereof, if appropriate disclosures and tax filings are late, inaccurate or missing certain information, the U.S. government will assess substantial penalties.
We can prepare the appropriate information tax returns to ensure compliance with disclosures and filing due dates as well as provide various planning strategies such as integration of U.S. and foreign trusts structures, making a 65-day and check-the-box elections, timing of distributions and dispositions of assets to avoid tax and penalties in relation to accumulated income (undistributed net income, UNI) controlled foreign corporations and passive foreign investment companies.
U.S. cross-border (international) tax services are our focus. Please contact us if you need assistance with any foreign trusts & estates, pre-immigration and expatriation, investments in U.S. assets & real property, offshore voluntary disclosure, FATCA or inbound corporate tax services matters.
The U.S. market can be an especially difficult market to penetrate if a company does not understand the U.S. tax system as it applies to business entities.
In addition to the federal income tax levied, each state has its own income tax commonly known as Franchise Tax. Each state also has its own sales and use tax laws which are similar in concept to VAT and GST tax regimes in other jurisdictions. The U.S. sales and use tax regimes are similar but yet different in each state. Each state uses said taxes to encourage certain types of companies to do business within its state.
The ability of each state to impose an entity level Franchise / Income tax and sales and use tax is dependent on sufficient nexus (i.e., connection) with the state. Each state has its own rules with regard to what constitutes sufficient nexus, and the nexus rules are different for Franchise / Income taxes and sales and use taxes.
It is very important to plan ahead for these matters. We can ensure you understand each business tax regime and provide structuring options to meet your business objectives.