International Tax Services
With our expertise in international tax issues, we help clients minimize tax, whether they're US citizens with interests overseas, non-resident aliens with business operations in America, or high net worth non-residents with investments in U.S. real estates.
Our international tax service include:
- Foreign Investment in U.S. Real Estate
- Foreign Account Tax Compliance Act
- Foreign Bank Account Compliance
- Non Resident Tax Returns for Foreigners in U.S.
- Expatriate Tax Returns
Foreign Investment in U.S. Real Estate
Real estate is very much a tax-driven industry. As a result, changes in U.S. tax policy have an impact on the relative attractiveness of real estate as an investment class for non-U.S. investors. There are several unique rules applicable to non-U.S. citizens, non-U.S. residents and foreign companies that own real estate situated in the U.S. Congress passed most of this legislation nearly 20 years ago know as the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA").
Prior to the enactment of FIRPTA, a foreign investor in U.S. real estate was not taxable on real estate capital gains unless:
- the real estate activities of the foreign person during the year of the sale were substantial enough to constitute the conduct of a U.S. trade or business;
- the real estate otherwise constituted an asset used in a trade or business;
- the taxpayer made a net-basis election and such election was in effect during the year of sale (these net elections could be made under the Internal Revenue Code (IRC) or under a treaty); or
- in the case of an individual, the taxpayer was physically present in the United States for 183 days or more during the year of sale.
?FIRPTA created a completely different tax method by which non-U.S. residents are taxed upon their gains derived from ownership in U.S. real estate. FIRPTA also imposes a mandatory withholding mechanism by which part of the tax must be withheld by the buyer (or third party withhold agent) immediately upon the sale or disposition of the U.S. real property interest. Under FIRPTA, a tax cannot be imposed unless there is a sale or other disposition of a U.S. Real Property Interest.
Foreign Account Tax Compliance Act
On December 21, 2011 the IRS released information about form 8938 which requires certain individuals to attach the form to their personal income tax returns to report "Specified Foreign Financial Assets" for the 2011 tax year. Form 8938 must be filed by individual taxpayers with specific types and amounts of foreign financial assets or accounts. Covered taxpayers that fail to file form 8938 will be subject to various penalties. The form covers many foreign financial holdings that are not required to be reported on form TD F 90-22.1 (FBAR) and taxpayers may be required to file form 8938 even though they may not be required to file the FBAR.
You must file form 8938 if you are a specified individual as follows:
- U.S. Citizens
- Resident aliens of the U.S. for any part of the tax year
- Non-resident alien who makes an election to be treated as a resident alien for purposes of filing a U.S. tax return
- Non-resident aliens who are bona fide residents of American Samoa or Puerto Rico?
And you have an interest in specified foreign financial assets as follows:
- Financial accounts maintained at foreign financial institutions
- Foreign retirement accounts
- Direct ownership of stock in a foreign corporation
- Foreign life insurance products
- Foreign partnership interests
- Foreign hedge funds
- Foreign private equity funds
- Foreign deferred compensation arrangements
- Beneficial interests in foreign trusts or estates
- Interests in disregarded entities are covered
And you meet the following reporting thresholds:
If you live in the U.S. you must file if the AGGRAGATE VALUE of foreign financial assets are:
- Single/Married Filing Separately: greater than $50,000 on the last day of the tax year or greater than $75,000 at anytime during the tax year.
- Married Filing Jointly: greater than $100,000 on the last day of the tax year or $150,000 at anytime during the tax year.
If you live in a foreign county, you must file if the AGGRAGATE VALUE of the foreign financial assets are:
- Single/Married Filing Separately: greater than $200,000 on the last day of the tax year or $300,000 at anytime during the tax year.
- Married Filing Jointly: great than $400,000 on the last day of the tax year or $600,000 at anytime during the tax year.
The form is due on the same date as your income tax return including extensions since it is required to be filed with the income tax return. As a result it should be filed at the same IRS service center as your income tax return.
The base penalty for failure to file is $10,000. Additional penalties for failure to comply once notified may be levied and can increase beyond 90 days by $10,000 for each 30 day period up to a maximum of $50,000. There is no penalty for a reasonable cause submission.
Foreign Bank Accountant Report (FBAR)
U.S. citizens and residents and certain nonresidents who have a financial interest in or signature or other authority over any "financial accounts" in a foreign country are required to make a seperate filing if the aggregate value of these accounts exceeded $10,000 at any time during a calendar year.
The FBAR filing requirements apply to any "United States person", which is defined as those who fit into one of the following categories:
- A citizen of the United States
- Green Card holders
- Foreign persons residing in the U.S. for extended periods of time
- Domestic partnerships, corporations, and trusts.
- Individuals that have signing authority over a non-U.S. account
?Foreign "financial accounts" include a wide variety of items, such as:
- Bank accounts (saving, checking, deposit or any other account maintained with a financial institution)
- Securities or brokerage accounts
- Mutual funds
- Debit and prepaid credit cards maintained with a financial institution
- Certain types of Annuities or pension accounts
- Retirement plans
- Interests in partnerships, trusts or other pass-through entities having foreign accounts
- Insurance policy with cash surrender value
These filings must be made by June 30th of the following calendar year, and the time for filing is not extended by a tax return extension. There are severe civil and criminal penalties for non-compliance of there filing requirements. Even an inadvertent failure or incomplete filing can result in a $10,000 civil penalty, and the IRS has begun enforcing these penalties.
The mechanism for reporting the FBAR information is filing form TD F 90-22.1. The form is required when the sum of the highest values in all of a taxpayer's financial accounts exceeds $10,000 during the calendar year.
Expatriate Tax Services
If you're planning a move abord, or you're already an expatriate, you have more to think about than adjusting to a new culture. Although it may be tempting, you must not ignore your U.S. taxes. Every U.S citizen, regardless of whether they are living in the U.S., must file a tax return with the federal government.
The tax situation for expatriates is often complicated and frustrating. Many variables affect how much expatriates pay Uncle Same, from whether you deduct your foreign taxes to your host country, and your employment situation.
Fortunately, we can help. Contact us if you need additional information.
Non Resident Tax Returns for Foreigners in U.S.
There is a distinction in the U.S. tax code between Non-Resident Aliens temporarily in the country and those here on a more permanent basis.
- Non-Resident Aliens Temporarily in USA (Less than 90 days)
You income from labor or services performed in the U.S. is free from federal taxation if several conditions apply. First, you werer not present in the USA for more than 90 days during the tax year. Second, you earned, in total, less than $3,000 from the US-based work. Third, you are an employee of, or under contract with, a foreign person not engaged in a business in the USA; a US person, if the services are performed for the US person's office overseas; or a foreign office of an agency of the US government. If these three conditions are satisfied, you income is not US-source income and it is not subject to federal tax.
The United States has negotiated tax treaties with many countries. Some of these treaties allow for an income ceiling above $3,000 or a length of stay limitation beyond 90 days. We will research the USA's treaty with your home country to learn if different rules apply to you.
- Non-Resident Aliens in USA more than 90 days.
The distinction between resident aliens and nonresident aliens is crucial because resident aliens, like U.S. citizens, are taxed on worldwide income, whereas nonresident aliens are taxed only on U.S. source income. We will have to verify your status as a nonresident alien as the first step in the tax planning process. If there is no special treaty exists, you are treated as a resident only if one of the following three conditions is met:
You are a "lawful permanet resident" of the U.S. at anuy time during the calendar year,
You meet the "substantial presence test", or
You elect to be treated as a resident alien.
The absence of all of the preseding conditions generally indicates that you are a nonresident alien. Of ourse, there are exceptions to the general rules. You may also qualify for dual status residency. if so, your tax year is divided into two separate tax periods. You are then taxed as a resident during one period and as a nonresident during the other.
The income of foreign persons subjects to U.S. income tax is divided into two categories: certain income that is effectively connected with a U.S. trade or business, and certain U.S. source income that is not effectively connected with a U.S. trade or business. Effectively connected income is taxed at graduated rates. Income not effectively connected with a U.S. trade or business is taxed at a flat 30 percent, subject to withholding.
Generally, non-resident aliens file a special tax return, 1040-NR, and are subject to certain specific rules:
- Married nonresident aliens who are not married to U.S. citizens or residents generally must use the tax table column or the tax rate schedule for married filing seperate return when determining the tax on income effectively connected with a U.S. trade or business. They normally cannot use the tax table column or the tax rate schedule for single individuals.
- Nonresident aliens caanot claim the standard deduction.
- Generally, if you are a nonresident alien engaged in a trade or business in the U. S., you can claim only one personal exemption. You may be able to claim an exemption for a spouse and a dependent in some special circumstances.
- You can claim deductions to figure your effectively connected taxable income. You generally cannot claim deductions related to income that is not connected with your U.S. business activities. Except for personal exemptions, and certain itemized deductions. youcan claim deductions only to the extent they are connected with your effectively connected income. Nonresident aliens can deduct certain itemized deductions if they receive income effectively connected with their U.S. trade or business.
Do you need our help?
Please take our FBAR survey to find our if you may need assistance from our team. We will be happy to get in touch with you as soon as possible to address your special international tax needs. Please contact us, we will help you naviagate the tricky waters of U.S. taxes.