International tax planning involves cross-border transactions, which requires knowledge of international tax laws to achieve optimal tax results. We at Morris Law Group have the expertise required to design a Wealth Preservation Solution tailored to meet your international tax planning needs. If you have a need for international tax planning, contact our office to guide you through this “taxing” process.
International tax planning often involves complex rules and requires an understanding of the interplay of the subject jurisdictions and impact of relevant tax treaties. Depending on the jurisdiction that you are coming from or going to, whether or not a tax treaty is in place, and the types of assets you have, there are multiple possible outcomes of any transaction. Taking all of this into consideration, as well as income tax planning and transfer tax planning, we will carefully analyze your situation to advise you on the best options for your personal goals and objectives.
Transfer tax rules in the U.S. differ depending on the status of the non-citizen. There are planning opportunities for nonresident, noncitizen individuals (NRA) who may be planning to become residents of the U.S. All of the worldwide assets of a resident non-citizen of the U.S. are subject to the estate and gift tax. On the other hand, only certain assets of a NRA that constitute U.S. situs assets for transfer tax purposes are subject to U.S. transfer taxes.
It is important to note that the rules can differ between estate and gift taxes. The U.S. gift tax applies to a NRA only if the tangible personal property is physically located within the U.S. Transfers of intangible personal property such as stock, debt obligations and other business entities are exempt from gift taxes. However, the stock of U.S. corporations is subject to estate tax. The rules are somewhat unsettled regarding partnership and LLC interests with respect to the applicability of federal gift tax or estate tax for NRA owners.
The estate of either a U.S. citizen or a non-U.S. citizen is entitled to a marital deduction for property situated in the U.S. passing to a U.S. citizen spouse. If the surviving spouse is not a U.S. citizen (regardless of domicile), transfers will qualify for the marital deduction only if the surviving spouse becomes a U.S. citizen before the filing of the U.S. estate tax return or the property passes to a Qualified Domestic Trust (QDOT). Just as with a marital trust for a U.S. citizen spouse, a QDOT must pay all of the income to the spouse for life. A QDOT must have at least one U.S. trustee, and may make principal distributions only to the surviving spouse. Estate taxes are due on distributions of principal to the surviving spouse from the QDOT, or upon the death of the surviving non-citizen spouse.
Proper tax planning is, therefore, essential in an international setting to reduce the tax consequences that arise due to the lack of consistency in domestic tax systems. Without proper tax planning, there may be larger tax payments and compliance costs.
International tax planning can seem like a complicated procedure if you don’t have the right guidance. Contact us at Morris Law Group today, we will work with you to guide you and ensure that you understand each step of the process.
** Disclaimer Required by IRS Circular 230** Unless otherwise expressly approved in advance by the undersigned, any discussion of federal tax matters herein is not intended and cannot be used 1) to avoid penalties under the Federal tax laws, or 2) to promote, market or recommend to another party any transaction or tax-related matter addressed.