Tax Considerations for Foreign Nationals

Foreign Nationals, who reside outside the United States and yet do business or own U.S. assets may be unaware of the potential tax liability they face. A foreign national classification under the U.S. tax code, as either resident alien or non-resident alien, determines what tax rules apply for gift and estate tax purposes. Different rules apply for income tax purposes.

How Are Foreign Nationals Affected?

  • Resident aliens (Green Card holders) reside permanently in the United States and are taxed on worldwide income and assets similar to U.S. citizens
  • Non-U.S. resident aliens do not have permanent legal residence in the United States and are only taxed on U.S source income and U.S. based assets. Also, the federal estate tax exemption limits are quite low compared to those U.S. citizens/residents.
  • Resident and Non-U.S. resident aliens are not entitled to the unlimited marital deduction, which allows unlimited transfer of assets between spouses without any estate or gift taxes.

Non-resident aliens may have a reduced U.S. tax liability if their home country has a tax treaty with the United States. For a list of tax treaty countries, please visit IRS Income Tax Treaties

What U.S. Assets Expose Foreign Nationals to Taxation

  • U.S. Brokerage Account Deposits – Cash accounts held with U.S. investment/brokerage firms
  • Personal Property Located in the U.S. – Cars, boats, fine art, jewelry, furniture, and other tangible property located in the United States.
  • U.S. Real Estate– Real estate property located in the United States.
  • Stocks of U.S. companies – Shares of stock in U.S. companies, whether publicly traded and/or privately held, regardless of the location of the certificates. Includes mutual funds or money market funds.
  • Bank Accounts for Business – Bank accounts owned or connected to a U.S trade or business.

The above is only a partial list of U.S. situs property, for a more complete definition of assets considered U.S. situs property, please visit IRS U.S. situs rules

Please contact us to learn about the benefits of using life insurance as a tax planning tool.