Smart tax planning before becoming a
U.S. tax resident via the EB-5 route
Moving to the United States could come with a hefty tax price tag. However, when
planning prior to the move, many tax pitfalls can be avoided.
By Cristina Teixeira
US TAX RESIDENCY RULES TAX RESIDENCY EXCEPTIONS
Individuals become U.S. tax residents if one of the following
tests are met: if they are U.S. citizens; if they have a green
card or if they exceed 183 days on U.S. soil in a “substantial
presence test” formula that considers the days spent in the
past 3 years. There are exceptions to the U.S. tax residency rule.
Individuals holding green cards can claim the tax-treaty tie
breaker rule. In this case, income will be exempt from U.S.
tax under the treaty, as long as the individuals keep their
vital center of interest in the country with which the U.S.
has signed a tax treaty.
When moving to the U.S. via the EB-5 route, investors are
granted a permanent resident card. In this case, the U.S. tax
residency starts on the day of the first entry in the coutry
with the green card or when the green card is issued, if the
individual is already in the U.S. It is possible, however, that
the U.S. tax residency starts even sooner for those already
on U.S. soil, depending on the type of visa they held prior to
obtaining the green card and the number of days they spent
in the U.S.
Once a green card holder, an individual is always a U.S. tax
resident, unless one of the exceptions to the residency rule
applies, or the individual relinquishes the green card.
22
EB5 INVESTORS M AGAZINE
Another exception applies to the substantial presence test,
and it can be granted to students. Many immigrants first
come to the U.S. to study, decide to stay on a permanent
basis, and choose the EB-5 route. When in the U.S. under a
student visa, the days of presence are considered exempt
and do not count towards the 183 days formula. As a result,
the person is considered a nonresident in the U.S. and is
only subject to U.S. tax on U.S. source income and assets.
This exemption can be used for up to 5 calendar years
during a person’s lifetime.