People immigrate to the United States for many different reasons. Many come here for work reasons and, somewhere along the way, obtain permanent resident status, otherwise known as holding a “green card.” They may work in the U.S. for most of their careers, raising children and becoming integrated into the social fabric of their community. But for various reasons, some will wish to “go home” when they retire. Maybe the home country offers better healthcare. Maybe even after many years in the U.S., they feel more comfortable speaking their native language. Maybe their closest relatives are in their home country, and they feel that they need a support network as they age. Maybe the food is better.
Whatever the reason, those who have been green card holders for a long time (specifically, 8 out of the previous 15 tax years) need to be mindful of the so-called “expatriation tax.” The Heroes Earnings Assistance and Relief Tax Act of 2008 (the “HEART Act”) imposes a tax at the time of departure on U.S. citizens who have renounced their citizenship and on those who renounce their long-term permanent resident status after June 17, 2008. The HEART Act expatriation rules apply to those who, at the time of expatriation:
Today President Obama signed the Protecting Americans from Tax Hikes Act of 2015 or PATH Act. Among the provisions in the PATH Act is an increase from 10% to 15% for the Foreign Investment in Property Tax Act (FIRPTA) withholding tax on dispositions of U.S. real estate by foreign persons. The PATH Act also increases the FIRPTA withholding exemption for sales of residences from $300,000 to $1.0 million. Purchasers of U.S. real estate from foreign sellers need to be aware of these tax law changes to insure that the proper amount of tax is withheld so penalties are avoided. Even though the FIRPTA withholding tax on disposing of U.S. real estate has increased, a foreign seller must still file a U.S. tax return and determine the actual U.S. tax and pay the tax. The increased FIRPTA will be applied to taxes due and if it exceeds the tax liability is refundable.
Japan has always been a rather expensive place to live. Now, leaving Japan became expensive as well.
As of the first of this month, Japan has instituted an “exit tax.” People who have resided in Japan for more than five years out of the preceding ten years who leave Japan will now face a deemed-disposition type tax upon their departure, if they own certain types of financial assets that exceed 100 million yen.
Interestingly, this tax can apply even if the Japanese resident doesn’t leave Japan – it can apply when a resident of Japan gifts or bequeaths assets to a nonresident of Japan. This can make it more costly for family members in the U.S. or elsewhere in the world to inherit or receive gifts of certain financial assets from Japanese residents.
This tax is in effect as of July 1, but there is still some planning opportunity available for non-Japanese citizens who reside in Japan. The government has announced that they will not “start the clock” on the five-year rule until July 1, 2015. Thus, for foreign nationals living in Japan, this tax does not begin to apply until June 30, 2020.
So you want to do business in the United States. One of the very first things to think about is tax planning. It can make the difference between a profitable and unprofitable overseas venture. The level of scrutiny on cross border transactions has increased over the years, as technology has allowed governments to cooperate and collect data more easily. Both your home country’s tax authorities and the U.S. authorities will be interested in how your business is operated, to make sure that they are each getting their fair share of tax from your revenues. You need to make sure you are both complying with applicable laws and structuring your business in the most tax efficient way possible. Tax attorneys can help with that planning. Working with tax advisors in your home country and your accountants, they can help you develop a strategy and implement it.
Our next installment of our resource for doing business in the U.S. therefore seeks to give you some basic information about the different ways that foreign enterprises are taxed in the U.S. This is not aimed at telling you how to structure a particular project, but we hope that an introduction to the concepts will make it easier when you start considering tax planning. It should help you:
- Know what information you’ll need when talking with your tax attorney or other advisor
- Understand the reasons why certain facts and circumstances will likely impact that advisor’s analysis and recommendations.
A link to the installment is available here.
Foster Garvey’s International practice group comprises a cross-disciplinary group of attorneys practicing in areas ranging from business transactions, immigration, maritime, government regulatory work, transportation and logistics and estate planning. The group members include bilingual and multicultural attorneys who are well-versed in handling these subject matters in a cross-border context. A number of attorneys have been actively practicing in the international arena since the early 1970s.